Yesterday was a massive day for the markets. The FM delivered a better than expected budget and the indices we’re gung ho until the sell off began. Adani Enterprises was circuit down 30% and all other group stocks similarly placed. So with the FPO out of the way, literally, what are we thinking now?
First, on the budget. I’m happy that my tax outgo will reduce going forward and that’s a big positive. Also, with the 80C era almost over, the country will move from forced tax planning to real consumption and investment at personal levels. I believe it’s a fantastic push for consumer companies as there will be more disposable income in the hands of consumers and they can then decide how to spend, save or splurge.
This was seen as a negative for AMC stocks but in my opinion if you see their performance across the globe and especially in the US, they have compounded multiple times without any tax incentives so I have no reason to believe that our mutual fund companies will not do well going forward.
And here’s my two cents on Adani stocks. First, I did feel good when the FPO was subscribed as it made sure that the market has decoupled from the carnage in group stocks. Had the indices not recovered from the lows yesterday even though Adani group continued its downward move, I’d have been pretty worried. So the systemic collapse is not to be worried about.
Second, is it a good time to buy Adani stocks? Hell, no. I’ve earlier maintained that I had avoided the group when it was moving up 5% everyday for simple reasons that I didn’t believe the price was justified. For this and one more reason, I’m happy to see it go down or sideways or anywhere it wants to.
The first reason is that the derating of the group is now firmly in place. No group/sector/stock ever comes back to similar elevated levels just after it begins to slide just like no bull market is led by the leaders of the last run. So the prices we have seen in Adani will soon be a thing of the past and aren’t coming back in a hurry, if at all.
Two, I don’t know if the group will survive or not but am reasonably certain that this is going down the lane of Yes Bank and DHFL, even if the end game is not zero. Remember the day when Yes Bank fell 30%, people including myself jumped into it thinking this was a stress sale. I was fully convinced that this was a dream opportunity but to cut the long story short, I lost 90% of my invested capital. This group has only halved from its highs, it can still go down by half three or four times in the blink of an eye. Please read my earlier posts- Don’t buy Junk for more details.
So the best thing is to exit whatever you own in Adani and the second best is to avoid adding more to the existing positions. The one thing you must remember that it’s not a blue chip distress sale which is going to make you rich but a trap for losing half of your money in a hurry.
Thirdly, ITC is at lifetime highs! It feels fantastic but the story has only begun. I’ve maintained that these high quality, dividend stocks will do well and am certain the end game in ITC is not 400 but 600+.
On a slightly different note, I was in Dubai recently and have noticed the fact that the moment your income goes up, you spend and splurge on luxuries. Ne it cars, watches, perfumes, bags or any of the high end consumption items. Even though India is way behind the GDP per capita, there is a quiet explosion happening in consumption in our country. People are lining up to buy better everything. So the companies which are providing these brands to the public are going to do fantastic over the next decade as when China went up from $3T to $10T, every luxury goods was bought in a hurry by the Chinese, from LV bags to Johny Walker Blue Label to Range Rovers.
So by this idea, I foresee a future where TaMo will sell more JLR in Indian than in UK and Europe combined while Green and Gold Labels will be staple drinks. Reliance Retail is now selling a lot of these luxury brands in India exclusively so that makes it a fantastic bet. There are others as well so take your pick but play this theme. It’s still early days but over the next three five years,this is certainly going to explode.
Life is all about Compounding! 