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Thursday, October 27, 2011

Ramesh Damani - Grab stocks this Diwali


The mood is euphoric as Indian market opens for a brief session of Mahurat trading. However, there are whispers that the ECB meeting announcement tonight might just spoil the Diwali mood. Despite the concerns in the global markets, some experts are hopeful on Indian market.

Ramesh Damani, Member BSE is optimistic and bullish on market. In CNBC-TV18's special show Mahurat Trading, Damani says that the worst has got the market the bit of value that is emerging for investors because stocks have been sold away and they are fairly cheap.





Q: Is today a day of hope for you or are you feeling somber going into the next year?

A: Investors are always bullish by nature. Generally I think most of us are bullish not only over prospects of the companies we own but also over the future of this country. It is paradoxical. I mean the last year has been so bad in terms of the Sensex down 23-25% on a year-on-year basis, Diwali to Diwali but the paradox is that the worst has got the market the bit of value that is emerging for investors because stocks have been sold away and they are fairly cheap.

So it's hard to believe that if you buy at these levels a broad basket of stocks, you will not do well over a YoY period. So count me in the bullish and optimistic camp.

Q: Ironic timing as well for Diwali, everything is stacked up in this week. We had the Reserve Bank, we have got so much coming in from the global cues. Are you sensing there is a bit of grid unlocking in terms of where things go, going into next year?

A: The one thing that really surprises me among all this great unlocking that you are talking about is that you look at the price movement of the Dow which sets the pace even today for all the markets, whether its in Europe or emerging markets. The Dow is refusing to go down below a particular level. If you recall in the 2007-2008 bear market the Dow hit about 6800-7000 level. It hasn’t come close to that point yet. It seems to just viscously bounce back after a period of time. There is great amount of leadership in that market whether its with Google or Facebook or MasterCard so, the Dow seems like its finished its bear market correction.

Its now holding its values and its probably going to go into the higher end of the range. If you study the price of the Dow movements everything being known to the market, its an amazing conclusion to come to but I would suggest that its headed back to its old highs rather than the lows.

Q: Do you think we have put in our bottom at 4700 Nifty or around 15000 Sensex or you can't be sure yet?

A: You can never be sure on the market but I would be very disappointed if the market broke 4700. I would say that it will go up 500 points before it goes back to 4700. It’s hard for me to imagine the level of apathy that I have seen in this market. It has been probably the most extreme I have seen over the last 25 years in the market.

It's like no one wants to own stocks in India. You get an open offer to the public, whatever standard in next day the residual stock is down 70-80% in value from that price, you go through the shareholders list, almost no one is buying new quantities of share. The level of apathy suggests that the market is not heavy beast that’s going to go down, it’s fairly light. I think buyers would be rewarded over periods of time.

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I have never seen a market with greater apathy towards domestic investors than I have seen in India over the last 25 years. It is absolutely pathetic that no one is interested in buying stocks in India. That as I told you paradoxically is a great time to be looking as Buffet has told us many times, when other people are fearful, you need to be greedy.

Q: We have had competition this year though whether it is from fixed income or a couple of commodities like metals. To what upside do you approach the next year? If you feel more confident about the fact that we have some kind of base in place, what kind of returns can this market start to even hope to generate?

A: I have never been good at these kinds of things. In fact I don’t think anybody else, it’s pretty hard to predict whether 15% or 20%.

Q: This year everybody is wrong. 22,000, we came to 20,000 and now it’s like well maybe 16,000, we don’t know.

A: I remember last time I was amongst the bullish voters saying. I am just saying look at individual companies, markets could go side ways over periods of time but companies with strong fundamentals whether it was domestic consumption theme that attracted a lot of interest and money last year or the themes that we think will play out for this year, I think individual companies will tend to do well.

We strictly focus on individual companies, we try and leave, focusing on the market to sitting in a bar or having loose conversations with people, it’s not much value added to the investors, try and predict where the market is headed over the next six months or year.

Q: We are just asking you about these FMCG stars like VIP and Titan and whether you think that’s going to start cooling off in terms of the valuations they enjoy now?

A: I think so. You could sense that these things run ahead of the fundamentals and so they are correcting but I think broadly the consumption theme that is attracting the smart money remains intact. I don’t think the consumption theme goes away. I have suggested to you in the previous appearance that I have made on your television channel, there are various ways to skin a cat.

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Maybe instead of looking at the headline names like VIP or Jubilant, you want to look at a packaging company, you want to look at a media story. I think the consumption theme will continue to drive the market as the headline names probably are a bit more too expensive right now for my liking.

Q: So one good stock idea for your viewers for Diwali. What have you been buying, what are you bullish on? Just on Diwali token stock idea?

A: I will tell you two themes that we are trying to suggest to your investors that they should be taking a look at. The first theme is that if you look at the companies that have changed hands recently where it’s a clean change hands, there is no slumps sale, there is absolutely change of hands.

For example Andhra Pradesh Paper Mill, insiders in the paper business bought at Rs 550, the stock now is available at about Rs 160.

It doesn't make any sense to me that it should be available after the company has become transformationally better, a better product line, a better management and better visibility. Rs 550 stock is available to investors at Rs 160. In a bullish market the same stock could be trading at a premium, not at a discount.

So I think whether it’s AP Paper, Camlin, East India Hotels or even if one took larger caps, something like say Reliance Capital where lot of higher, Nippon has come in and bought in a stake, people are just in the general apathy, they are just throwing away the stocks without doing a proper fundamental analysis. This is just suggestive, I don’t have all these stocks, I do own some of them but this is a suggestive list that if you look at the deep discounts they are available.

Q: Do you think we could be trying to forge out of this 4700-5200 kind of trading range and we could extend the range on the way up, you think it’s possible over the next few days?

A: I think we are trying to breakout of the 5200 range. It is a huge psychological level right now. It is not going to be easy for the market to take it out but generally looking at the movement of the Dow, it has every reason to be not down and it seems to be very resilient.

That means liquidity is alive and well in the market and good stories attract money. My sense is we will go over that 5200 level. I am in the minority of this I understand but I just can't believe the way the Dow has been performing. The sheer price performance of Dow suggests that it is ready to lead the better markets higher.

Q: What's the other theme going into the next year? What is it that you think should be looked at for the next year?

A: The cabinet has actually done some work and passed what is called the Cable Digitisation Bill. It has not really seen much fan fare, very little attention but it’s a game changer for the broadcasting and cable industry. It essentially means that Indian television is going to go from analogue to digital. Any time the industry moves to analogue to digital whether it was in telecom, whether it was in photography, whether it was in stock exchanges - it creates new sets of winners and losers over the next few years and at a fairly rapid pace.

So I think given the fact that the Digitalisation Bill is now going to become an ordinance soon, I think its time to look at the media companies and particularly cherry pick broadcasting companies you like.

I think some cable companies also do well but particularly the market caps of these broadcasting companies are at pitiful compared to the power, influence and almost franchise values that they enjoy. They really are moats in their businesses. So I think over the next few years, I can't predict whether it is the next six months or so, I think the media sector will tend to be re-rated across this country. I think as we speak, they are trading at absolutely ground floor pathetic valuations.

There are very little downsides. As we see ad GDP grow up, as we see a new consumption boom take place, these are going to be direct beneficiaries of that. As a broad sectoral theme, I would suggest lookin at the media space.