History Rhymes!

Every Bull market is led by different heroes. The ones who led the last bull market rarely contribute on the upside. We have all heard this multiple times. However, it’s interesting to see this playing out day in and day out on screen. What is happening to the HDFC group stocks or the Bajaj Twins is not totally unexpected.

Markets have fallen in line with the global markets. The US tech stocks which were the darlings leading up to the end of last year have been butchered. Multiple fancied stocks have fallen over 75% while the revered FAANGs have not been left unscathed either- Netflix has gone from 700 to 175, Facebook/ Meta is down 50% while Amazon and Google are down a third each. Even Apple is down more than 20%.

Now add to this the fact that Adani is all set to take over Ambuja-ACC combined and you have an entire episode of 2007-08 playing out with Tata Steel acquiring Corus and Tata Motors acquiring JLR.

What I believe is that a churn is happening in the markets and a new Bull Run is taking steps with new leaders. The old war horses will either start to massively underperform or will move sideways for years to come. We have seen this in the past as well. The technology stocks did nothing for the first decade of this century after running up all the way to moon and back- Microsoft, Infosys and for that matter even HUL went nowhere for a good 7-8 years period. Similarly, Reliance went nowhere between 2007-14 while ITC has only recently begun to crawl.

So my bet is that the current lot of quality stocks- Asian paints, Berger, HDFC twins, Bajaj Twins etc will languish while the hot stocks such as IRCTC, Apollo hospital, Page etc will either fall 50-70% or will do nothing for the next 5 years. The game has moved on and so shall we.

As far as the new age companies are concerned – Paytm, Zomato et al are still hugely expensive and will go down at least 50-60% from here. The only thing I managed to learn from this carnage is that our MF managers do nothing special but to buy what’s going up! I used to admire Ramdeo Agarwal a lot for his conviction and quality picks. However, when I realised he has been buying Zomato and Policy and such a lot just because they’re moving up and came out on TV to justify the same, I lost quite a bit of respect I had for him.

In a market where junk flies the highest, the temptation to buy is enormous. I remember being asked if Zomato is a good buy and after having said no it’s not, to be almost mocked because the price went up 2x in three months. Well, I’m happy that I didn’t succumb to any such feel good story. A lot of people who thought Paytm is a great buy at 1200 or at 800 or even at 550 are yet to learn history lessons taught in the case of Yes Bank, Jet Airways and Suzlon.

Coming back to the Adani deal- I sense this massive $10B deal will formally mark the end of this commodity/metal/cement run in India. As I’ve iterated earlier, all these deals mark the end and not the beginning of a massive up cycle. It will be interesting to see how Adani group stocks fare over the next one year or so.

ITC has been the story of this correction. I’ve sensed in an earlier blog that maybe it’s ripe for an upswing and that feeling is being proven correct. The fact that it’s up 20% when the market is down 20% in itself shows which way the wind is blowing. Reliance too seems to be ready to lead this rally.

Some of the great stories such as Insurance, Credit cards etc were massively overpriced throughout the past five years. Similarly, Dmart, CAMS, IEX etc were beyond the reach of any sensible investor. I reckon in two to three years, some of them would be reasonably priced, just the way HDFC AMC is trading below its listing price after four years of IPO. This market may give us some opportunities in the near future.

As is our ritual, let’s talk about what I’ve been reading- Ambani and Sons is a fantastic read for anyone to understand how India looked 30 years ago and how privileged we are to not be living in those times.

PS- here’s a video from October 2008 when the world was literally falling apart. https://youtu.be/dcA9zGoAUhM

It’s interesting to see what our heroes talked about when they didn’t know if the world would survive. What stuck me is the ticker price showing Bajaj Finance at 50, ACC at 400 and Bajaj Finserv at 130! Now in hindsight it’s easier to say oh everybody knew Bajaj Finance is such a great stock. How many actually bought it at that price is the real deal!