Not time to be overly bullish on metals, make a small allocation: Anshul Saigal

Not time to be overly bullish on metals, make a small allocation: Anshul Saigal

“If one wants to buy an IT services company, one should focus on the largecaps and not really the mid and smallcaps because the re-rating has been severe there. The pain can be there for some time, more than the largecaps,” says Anshul Saigal , CIO, Kotak PMS .

A lot of question marks being raised about how sustainable is the rally in metals? In a typical commodity cyclicality, it could be a 3-4-year move and we are already into the second year. What is your view? Does one need to book some profit or is the commodity super cycle here to stay in metals?
Two or three things are playing through in metals. One, there is a significant increase in input prices for metals whether it is logistics or raw materials and all of these have gone up significantly.

The increase seems to be holding up, meaning it is not a temporary increase and to that extent, there will be an increase in prices of the finished products as well. Having said that, we have to keep in mind that this is a cyclical sector and between 2020 March and today, a significant part of the rally has already played out.

Now for someone to enter today in the belief that there is going to be an equivalent sort of uptick because of various global factors is taking too much of a call. If at all, this can be only a minor portion of portfolio and investment in metals cannot be a significant investment because the risks and rewards are evenly balanced at this time. Only time will tell whether rewards play out way higher than the risks.

So to that extent, I would say that this is a time to be not overly bullish on this space. One may have marginal investments in the space but not a significant part of portfolios.

On the entire reopen trade, do you think the worst is behind us?
If one thinks about the Covid period, the household spends have transitioned in this period. We were not able to go out of our houses, there were lockdowns, travel was restricted and people were focussing on buying goods and their spends were not going towards experience. What has changed now is that with significant vaccination as also the virulence of Covid coming down, spends are likely to shift away from goods and into experiences and to that extent this space is likely to be a significant beneficiary.

Also because household savings have ballooned in this period to an estimated $300 billion, all that money has to come out and be spent and the weightage of that spend is going to move away from goods and towards experiences. Thus tourism, travel and all these experience related sectors should be beneficiaries.

In our judgement, this is only the beginning and Covid was really the nadir of this space because 2014 onwards, this space has been only going one way and down. So, a six, seven year downswing with the bottom being made around Covid, should reverse and with that we could have a multi-year upside.

What is your take on the entire debate amongst experts whether it will be a year of largecaps or a year of smallcaps? Right now, the likes of Titan, Asian Paints, ITC have made a comeback in the last couple of weeks. Do you see some sort of value as far as these stocks are concerned as they had corrected quite a bit or will it be the midcap and the smallcap space which will outperform this year?
In our judgement, this will be a year of caution where one will have to really not focus on the market cap so much but focus more on earnings visibility. So sectors and segments where there is earnings visibility will do well and segments where there will be limited earnings visibility, will have no bottom. Why I say that is because valuations do not leave any room for error and the only saviour in times like these is earnings visibility.

If you can pick those segments, then clearly whether it is largecap, midcap or smallcap, just go with it. It is unlikely that those segments will be sold. Even in the recent volatility from December to February, certain segments of the market which are small and midcap in nature, did not correct because there was earnings visibility in those segments.

Home improvement for instance or even in real estate, there was not a significant correction where […]

source Not time to be overly bullish on metals, make a small allocation: Anshul Saigal

Leave a Reply