Do not overpay just because markets at new high; be where the earnings are: Gurmeet Chadha

“Whenever valuations are at 23 times forward earnings, lumpsum investments can give sub optimal returns. It would be good to stagger it some time. Do not overpay just because markets have made a new high. Be where the earnings are. When you reach a century or a half century in cricket, you take a fresh guard. That is needed and it continues to be constructive as far as the long term story goes,” says Gurmeet Chadha, Managing Partner, Complete Circle Consultants

Are we looking at 20,000, 21,000, 22,000 on Nifty? If we are looking at these levels, how soon?
One thing is clearly standing out. Indian markets are outperforming if you compare it to a Nasdaq or a Hang Seng or a DAX or most global markets. It is also outperforming in terms of still maintaining a nominal growth of let us say about 12-13% in a tough environment like this. We have managed inflation better. We obviously gave a more supply side response and our macros are looking slightly better. Everything is relative in this world and so that is getting captured and this retail participation is giving that cushion of regular flows coming to the market. With FIIs turning buyers in November I think this had to happen.

But right now, the moot question is whenever you see valuations at 23 times forward earnings, an aggressive lumpsum investments can give you sub optimal returns. It would be good to stagger it some time. Do not overpay just because markets have made a new high. Be where the earnings are. When you reach a century or a half century in cricket, you take a fresh guard. That is needed and it continues to be constructive as far as the long term story goes.

What about your views on the likes of Delta Corp? How packed the airports are and we are not getting hotel reservations for New Year season and Christmas and prices are going through the roof. Obviously there are lots of beneficiaries within the listed space?
In the reopening trade, unfortunately we do not have many listed options. Hotel is one sub segment which we do like in this travel and reopening bit. I think we like Indian Hotels. It is a much more asset light model. Obviously the prices have gone up post Covid, but they have a clear strategy of one-third EBITDA coming from the contractual versus the leased rooms and some other asset light models.

Every two keys they are adding; one is on contract and one is on lease continues to have a target of 2025 getting up 30-35% kind of EBITDA margins. It is a very asset light model and that is something we track. There is an almost 90,000 plus room portfolio which we continue to catch up on. Even Ginger now seems to be doing pretty well. Some of it is probably through QSR names like Devyani and Jubilant which have been a little subdued. We like the QSR segment. So we tend to play this through the hotel as well as the QSR segment.

Where within the entire infrastructure and capital goods sector, are you seeing potential because there has been a lot of follow through on the policy front? What about L&T? Even names from the defence space or railways have been key beneficiaries. If we see consistent follow through from the government standpoint, this space benefits a lot?
It does. In fact, L&T got their biggest private order in the last four years recently. While the order book has always been healthy, if you see the book to bill has gone up to 3.1-3.2 probably also improves execution visibility till the next two years, three years which is let say FY25 and gives good earnings visibility.

Second, any fall in steel, diesel, bitumen and a lot of other commodities also will have some positive influence on the margins as well. And then we have the other businesses wanting to beat the core business. They also have rationalised their Hyderabad Metro which was leaking for them. A lot of things are coming together and we are constructive on L&T. It has not participated the way it should have considering that we are at the cusp of a private capex cycle.