"If markets do not correct as much, they settle down but we find some stocks which are available at reasonable valuation, then we can look to allocate to that but right now I think we need to wait it out," says Sandip Sabharwal, analyst, asksandipsabharwal.com. What stood out to you in this week that has gone by in terms of the big earnings that have been reported?There have been two categories of companies which have surprised positively. One is where expectations were already high but they did very well. For example, out of yesterday’s results, United Spirits and Titan delivered strongly. Now there is a debate on what valuations should they be trading at. I think that is a separate debate but specifically on the results, those two results were positive. We also saw that the other category of companies where there was a positive surprise was where the expectations were low. For example, among the auto stocks, TVS Motors outperformed, Bajaj Auto results were better than expectations. That is the category where expectations were low and these companies actually did better than expectations. On the other hand, there have been companies where the expectations have been very high. They have disappointed and those stocks have been sold. Besides earnings, an update came in from Asian Paints or there are reports that suggest that price increases are being taken and that is being seen as a positive. The stock is up 1.2% in a broadly weak market. How would you rate this? Is it still a buy at these current levels?Companies will try to keep on taking price increases till the point of time it starts hitting demand. So in an economy like India, where real incomes are not going up so much and there is only so much price increase you can have. The jury is still out and we will see how these price hikes impact the real demand. But the fact of the matter is that Asian Paints is a very expensive stock. Even on the most optimistic earning estimate of this year of Rs 30-32 earnings, it is at Rs 100. Actually earning should be less than that and so I think it is a very expensive stock. I do not see it giving any significant absolute returns from here over the next one or two years. The Nykaa IPO retail portion got oversubscribed by 11 am. You had tweeted that it is a Rs 53,000-crore market cap that they are assigning to the valuation given the price band whereas the profits last year were Rs 61 crore. What is that telling you about the retail frenzy for these niche businesses in the market and would you be a subscriber to Nykaa at all?It is not only a retail frenzy. It is a frenzy of the fund managers also. Look at the way all these people have bid for the anchor. I believe that the anchor portion got oversubscribed by 40 times. It is complete craziness. It might be a good company, it might be something unique but it does not offer something extraordinarily unique. So what people are basing their expectations on is the kind of liquidity we see sloshing around all over the world this year. This liquidity is not going to remain the same way and going forward very high valuation companies which do not have earning backup will have a tough time next year. So purely on the listing prospects, maybe there will be a pop-up and on the retail side, the oversubscription itself will be so high that you will end up getting virtually not too many stocks. So I do not think it is worth it. I am not really looking at subscribing. I would think that if the markets give up some more gains, we might actually find better opportunities where we can deploy a reasonable amount of capital cheaper into companies which actually have earnings backing them. Is the valuation frenzy nearing its peak?Whether it is at a peak or not, it is tough to say. I do not think that the frothiness indicates a peak of the bull market but an intermediate peak yes, especially given the way the mid and smallcaps were running up. On the largecap side, there are still pockets of value possibly but on the midcap side, it was complete craziness and some amount of froth has gone out over the last few weeks and the next few weeks might see some more of the froth go out. But the big issue is with this entire IPO market. The way the stocks are getting priced is very dangerous. I would think that Paytm’s kind of valuations will be successful because of the way people are lining up. I hope that the market does not collapse under the weight of these IPOs. I want to ask about IRCTC and this is something that we have been watching for some time. Today the stock has split and on that split it has gained and is holding out at this juncture. But this is after the crack that it saw. Would you wait still for a little bit of the dust to settle on this counter before you see that it is a good level to enter or are these levels fine?Firstly I will not ever enter the stock. Secondly, I do not think the value of this stock is about Rs 1,500. Now it is split by five so I think Rs 300-350 is where I would think the value of the stock lies. They did a profit of Rs 700 crore in 2019. That profit will come after two years. So two years into the future, the stock trades at 80 times or more price earnings ratio at these prices. For a PSU stock do you want to give that kind of price earnings ratio in a business which once everything normalises, the growth prospects will just be 5-10%? Have you bought anything in the current decline?We are still waiting. I would think that if we come down to around 16,500 odd kind of levels, then we should be able to see some sort of value in the markets. Let us see what happens over the next few weeks. If markets do not correct as much, they settle down but we find some stocks which are available at reasonable valuation, then we can look to allocate to that but right now I think we need to wait it out.
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