Are you too concerned about the underperformance of midcaps relative to largecaps or would you say that against the backdrop of the surge we’ve seen from 2020 lows or price action this year through? now it is negligible and ignorable?
We’ve had a fantastic run in the midcaps over the past three or four months. We have taken a break right now in these stocks. I have the impression that the shift from mid caps to large caps has happened and that it is going to be temporary. People will be waiting for the second quarter numbers which will start coming in a month later. After that, we’ll see the return of mid-cap stocks once again. Until then, it’s time to take a break and we’ve seen a lot of IPOs. The money that went to the primary market would otherwise have come to the secondary markets.
This is also one of the reasons we have seen some sort of breakout in midcap stocks. The second most important reason is that for many stocks valuations were stretched and had done quite well in 2021. Some sort of profit taking has also taken place in these sectors and these are the two main reasons for this. which mid-cap stocks take a stop at this point. But stay invested. What we see in mid-cap indices and how large-cap indices fared after hitting a new high in January for the first time when Nifty hit the odd 14,000 and we have just returned from the levels of the 2018-19 peak of mid caps, small cap indices. Midcap indices could rise further in the coming quarters.
It gets a bit tricky with metals. Go up one day and go down the next day. Is the long term trend intact and is it favoring bulls?
Metals has been one of the best sectors for the past two quarters. The actions worked quite well. Most stocks doubled for both large and mid caps. It is obviously supported by the good recovery of profits in the metal space. In steel, we saw some sort of correction after a long time – around 10-15% in most stocks from short-term highs. I think it’s just a break from the rally. We will continue to see this kind of volatility in metals stocks, especially steel, after a fantastic rally. rose 22% in July and August and if we see some sort of sell-off maybe 7-8% from the peak I think that is very justified. My take overall is the cycle of recovery and overall the firm demand for steel will continue. We hear that China imposes an export tax on many products to control their inflation and control decarbonization. So in the short term, we might see challenges because iron ore prices have softened a bit. We have seen some of the metal inventories go down. But overall, the sector will remain the focus and it will be the sector that is expected to outperform current levels for the next two quarters. This is just a stop to the rally, but these are the times to buy steel stocks.
What do you think Bharti has in store for the longer term?
If you look at the management commentary after the first quarter results, things are better and Bharti as well as
mentioned that in the future, the price increase will be there. Bharti plans to increase its tariffs in about a few months.
If I look at the overall fundamentals of stocks, it looks like we should continue to hold stocks. Second, Bharti’s fundraising is nothing to worry about. They talked about their 5G plan. My point is that we should look at the positive aspects of the sector for Bharti as well as for Reliance. I would also buy Bharti at current levels in my Reliance portfolio. I see at least 20% increase in both stocks from current levels.
On what basis do you say that exactly? If I look at the last series that went by and how RIL did, it was a good progression but a 20% increase over how long?
Obviously, these are large caps with a broad equity base and it will take at least a few quarters for a stock like Reliance to outperform. This is one of the best to come after the Covid rally in stock at that time. All the businesses, Jio and retail and of course the core business of petroleum are also in the process of picking up. In the near term, the stock could stay within a range, but the outlook for the company is pretty bright. I think within two quarters we can definitely see a 20% hike in Reliance.