The market rally has taken me by surprise, the extent to which it has gone up. One could have justified a bit of the pullback largely on account of the fact that we moved up from completely shutting off the economy to largely getting back to shape. But even if you look at what the managements are talking about, we are still at about 80-85% of pre-Covid level and last year itself, we were on a declining curve. So, this year is still going to be a washout and one can only hope for a genuine recovery next year. So to then find that the market is actually anticipating all of that and willing to discount all of that has been a bit of surprise. But I am told that this is a level at which there is a lot of resistance and therefore I am not surprised that after a consistent and significant rally over the last few weeks, the market paused a bit only to bounce back at close.
On macro data
The macros obviously will take a lot longer. It is a far slower a process and jobs that get lost do not easily come back unless they are temporary jobs. What we are seeing however is the shift that is happening. Now a bunch of jobs will get created because of retail and logistics and so on. So the job situation will change a little bit and hopefully it is improving as quickly as the market seems to indicate.
The good thing that one can argue is that for once the government seems to be wanting to create some kind of stimulus. After having decided that they want to give money in the hands of the most deserving that is the most poor, they have now decided to give money to the government servants but at least someone will have a good Diwali and they will go and spend some money which may benefit the rest of us who are not going to be so positively impacted by government policy.
I would have preferred if they followed a simpler process of reducing the exorbitant taxes they have on things like fuel which may have a more direct impact and a more universal impact for people overall as well as reducing the cost of transportation and increasing the demand for the auto sector. But the government has chosen to find a way of affecting only a few segments which will perhaps reduce the kind of impact that one could hope for.
The interest rate remains a bit of an issue because the mandate of the MPC is very poorly worded and the only thing they have to do is worry about inflation as they do not have too many levers. Inflation is running out of control at this stage and while you can keep on arguing that it will come down, I see no reason why it will. Consequently, you do not have too many levers on that side and so the macro situation really does not matter too much in terms of the market. It is good for TV debates but in reality, what matters is whether or not there is enough demand that is coming through in some form or shape and anything that boosts demand is the only thing I would look at.
On up move in ITC
At some level, every stock becomes interesting and ITC in the private sector and most of the public sector companies are actually at levels where one is pretty much assuming that those businesses will shut down. Take anything in the power sector — whether it is Power Grid, Coal India or NTPC — all of them seem to be reflecting that kind of valuation. Similarly, the oil marketing companies are going at valuations which indicate that we are going to stop using petrol and diesel completely over the next few years which is not likely to happen in my view.
Among the private sector companies, ITC has come to a stage which would be called deep value. You are perhaps seeing a small up move there. How long it will sustain is anybody’s guess because for almost a decade, value has taken a backseat as opposed to growth and growth has gone at super normal kinds of valuations, whereas value has actually deteriorated even below what you would think is justifiable based on things like dividend yield.