Should you book profits or buy on dips now? Dipan Mehta explains

“Our strategy is to just stay put till the earnings season starts and then look at what numbers are coming through management commentary, how the quarter has gone through, what the outlook is and then make more informed decision on whether to buy or sell a particular stock,” says Dipan Mehta, Director, Elixir Equities

Where is the Santa Claus` rally or did it happen way earlier?
Thursday was a difficult day and I do not know about the Santa Claus rally but this is certainly not what we expected. Typically this is a quiet period, markets are generally stable but here we have kind of a selloff which has taken the indices down to multi-week lows and all we can do is just ride through this particular correction period, in a long-term bull market.

When the tables will turn, when the trend will reverse is anybody’s guess but underlying fundamentals are good. I am confident that eventually fundamentals, good corporate profits, increased flow of liquidity into our markets will arrest the slide we are seeing at this point of time.

Do you think Wednesday’s price action in some of the diagnostic stocks was outright silly?
Sometimes when they get oversold, technical factors come into play and one could call it short covering or value buying or existing investors trying to average the holdings that may have come into play over there but generally, we are not very positive on diagnostic stocks.

Although we are very positive on healthcare spending and the healthcare sector as a whole, in my opinion the better way to play would be through the hospitals. The last couple of quarters have been exceptionally good for hospital companies and we are seeing a great deal on normalcy coming through over there and most of the hospital companies have set up new facilities, expanded existing facilities and now we are seeing greater capacity utilisation, higher spends per available bed and all of these factors are certainly improving the fortunes of these companies.

These are great operating leverage businesses. Even if there is a marginal increase in the top line, a lot of it flows through the bottom line through higher profit margins. So the better way to play would be through hospital stocks. Then we also have these domestic-oriented pharma companies like JB Chemicals or Eris Lifesciences mind and then the pharma MNCs. Those also are a secular growth story at this point of time because spending on medicine is going to keep on increasing as healthcare possibilities expand and there is greater awareness.

For the next 15 days, what do you think is the best strategy – book profits and sit on the sidelines or buy on dips for some of the counters? Or should one look at capital preservation theories and buy dividend plays etc.?
Our strategy is to just stay put till the earnings season starts and then look at what numbers are coming through management commentary, how the quarter has gone through, what the outlook is and then make more informed decision on whether to buy or sell a particular stock.

In any case, we are getting into a bit of a quiet period towards the end of the calendar year and even the first few trading days of January may be pretty light in terms of news flow. We get into the earning season in the middle of January and that is where we can expect a lot of stock specific volatility and good opportunities to trade as well as invest in the market.

I am just staying put and waiting out this particular volatility or rather correction which is underway and waiting for this period to end and then look forward to a good earnings season. I was pretty happy with what companies reported in September and I think December will also be a great quarter and capture a lot of festive sales as well.

This year, the festive season has been exceptionally good. The Diwali weeks or so have been very good for consumption-oriented stocks and also a lot of capex and banks stocks which all of us are invested in. We should see sustenance of growth momentum for the December quarter as well.

Was festive season sales really strong? Except for the 10-15 days of the exact festive period there has been a bit of a slowdown. We were talking to Bajaj Electricals management who said demand continues to be weak. There are reports on car discounts being increased to pre-pandemic levels. Is there a big room for disappointment given that Street is pegging too much on festive sales and Q3 earnings?
There will always be selective pockets of strength and weakness when it comes to consumer spending. It is not like a straight line but there are reports that rural spending has picked up. V-management are pretty happy with the way rural demand has shaped up. Rural demand as well as tier two-tier tier cities are growth areas for a lot of consumption oriented stocks.

There will always be winners and losers entirely in the consumption spectrum – be it appliances or retail, specialty retail or any of the other QSR entertainment. There will be some amount of variance but by and large it is a good story. We are seeing the wealth effect and the income effect coming through very well in the Indian economy and the way credit also is growing especially retail credit per se.

I am not that concerned about the medium to long term growth matrix for consumption oriented basket or for the stocks which are sellings goods which the average consumer is looking at buying. There could be some disappointments no doubt but by and large, the sector as a whole should do pretty well.