Looks like things are going to turn for the better in the market: Daljeet Singh Kohli

“In an inflationary environment, usually companies which are leaders are able to pass on the price hikes and they are the beneficiaries. The followers, the second, third ones are normally the takers of these price hikes. So, we will definitely stick with only Asian Paints,” says Daljeet Singh Kohli, CIO, Stockaxis.com.

Is the red tie and a turban a sign for danger? Without speaking the words, do you want to show it in your thoughts?
No, no, it is just a coincidence; the colour of the tie and turban has nothing to do with the market. The market for the last four, five days has been very benign and in fact for the entire month of July, we have seen a 9-10% jump up. It was expected that some reason would come out and we will see some profit booking which is quite natural and good also because if the market just moves in one direction, then there is a chance of froth building in.

I think it is a healthy sign that the market is going up and then taking a breather and then going up again. That will be good. Wednesday was a kind of a breather and a very important clue from the market was that despite there being so much nervousness about the Taiwan and China story, the market has chosen to react positively or in a very mildly negative manner.

That shows that probably the market is now willing to take the bad news in its stride and usually that will be the good sign for trend reversal. In the last seven, eight months, we have seen that the market was not only ignoring good news, but bad news was being thrashed like anything. We have seen stocks going down 30-40%. If today’s trend is to be continued, then this is giving us the first sign that probably things are going to be turning better from here.

A few days ago, we talked about how this narrative about recession, inflation will take a back seat in the next month or so. Then we will again start talking about growth and revival and all that. So I guess this may be one sign for that.

One is increasingly seeing that the rural end of the market is getting a little bit problematic whereas consumption is picking up. When it comes to the urban trends, how are you maneuvering within the FMCG basket?
Within the FMCG basket, we like some of these QSR names like Jubilant Food, although it is still not part of our portfolio. We have DMart in our portfolio because we believe that is more tuned to the urban lifestyle; secondly, in rising inflation, people will look for a place where they can save whatever small amount they can. DMart fits there and the way the numbers have come for DMart, they were probably the best amongst all of these companies.

I guess the same store sales growth for all these QSRs is doing very well. The urban side and consumption on a higher side on high ticket size kind of think, luxury side that is doing well. Yes, there is stress in the rural side and the mass market side. That will probably continue for some more time because this benefit of inflation reducing or the commodity prices going down will take two, three months to trickle down. Till that time, we are positioned more towards DMart and maybe Jubilant.

What is your view on Zee? It has gone through a painful crisis because of debt in other group companies. Now they are on course to become a powerful behemoth if the Sony merger goes through. But the market is refusing to acknowledge that?
Yes, it is part of our portfolio. It is the only media company in our portfolios and probably the cheapest right now also. You are right that it is testing patience, we are losing, our entry point was round Rs 280-300. So, we are still losing money on that but we believe that this is a story which will play out over time because once this merger goes through all these formalities, it will take another six months. Today this news is about the exchanges giving out but ultimately NCLT and all those other processes have to be done which will take maybe another six months or so.

Once this process is out and Sony is formally in the management seat, at that time, the market will realise the importance of an MNC stock available at 10-12 times of valuation multiple and after the merged entity, it will have 25% of market share. So I guess it is a matter of patience. We will advise those who are holding this stock to continue holding. We are holding them in our portfolio.

How are you looking at the entire insurance space because surely this year SBI Life has outperformed and HDFC Life has also started inching higher. LIC has not been moving and now we are seeing quite a bit of movement in the general insurance business as well. How does one approach this sector going forward now?
Insurance is a long-term positive and constructive sector. One has to be in there because obviously there is a long path to growth. We know that penetration level is so low and all these companies have tremendous potential to grow but it will not happen in one day or in three or six months’ time. It will be over a period of time, slow and steady.

If somebody is a very patient investor and wants to keep a two-three year perspective, then probably it will suit that requirement. If people are looking for relative performance or compare it with what is happening every day in the market, then probably these stocks will not suit that requirement.

We have ICICI General Insurance and HDFC Life in our Vision 10 portfolio which is basically a 10-year perspective portfolio. In no other portfolio – one year, three year kind of portfolios, do we have any insurance company because we know that this will take its own time. If somebody has that kind of patience, then only one should be in this sector. Otherwise, you will have many other things to play out in the market.

We have seen very good set of numbers come in from the paint companies, Asian Paints started with volume growth of around 35-37%. What is your pick when it comes to the entire paint sector?
If one has to pick, then it will be Asian Paints only because it is a distinct leader over all other players. It has maintained that leadership despite taking 11- 12% price hikes in one quarter. The company has shown a 30% growth in volumes and that itself tells us about the capability of that brand.

In an inflationary environment, usually companies which are leaders are able to pass on the price hikes and they are the beneficiaries. The followers, the second, third ones are normally the takers of these price hikes. So, we will definitely stick with only Asian Paints.

Kansai Nerolac was a special case because most of its business drivers are coming from the industrial segment which is automotive paints. Maruti is their biggest customer. We have seen that Maruti has been doing well, production has gone well and therefore it has percolated down to Nerolac also. Now will that continue or is that directly tied up with what happens with auto companies. especially Maruti? In decorative segments, home paints and other things, Asian Paints is a clear leader and we will stick with that.

Asian Paints does not have the industrial business in it right?
It has a very small portion. It is not very well accepted. They do this automobiles powder coatings. Some of these automobile companies use that but mostly it is Nerolac which is very well entrenched in automobiles business..

Is Indigo Paints in the same space?
No Indigo is more into exterior and specialised paints where if you want to have have rubber finish or some outside painting where it will give you a car parking kind of finish. Indigo does those kind of specialised activities which is a very small portion of the entire market and which is picking up. The base is very small and so obviously growth looks very big but it is a very narrow market and a very you can say geography wise let us say in Bombay or some big cities people will look for those things, same way in exterior paints they have some specialised activity which again is growing but obviously the size is very small whereas in case of Asian Paints it is all encompassing, every field in home décor at least they are available in all kinds of finishes right from mass segment to the super premium segment.