Use market corrections to build portfolio of your dream: Sudip Bandyopadhyay

“The next financial year as well as the next calendar year we will see a lot of domestic focussed businesses doing pretty well. Unfortunately, these companies have not really moved up in valuation the way some of the other sectors are and there is still a valuation gap and opportunity of buying into these stocks. I would say that for an investor, construction, infra, capital goods and some of the select PSU bank buying should be the order of the day,” says Sudip Bandyopadhyay, Group Chairman, Inditrade Capital

What do you make of this sort of a selloff? It is a classical supply move. The markets opened gap down and then we are seeing continuous selling pressure. What do you make of it?
Clearly there is a lack of buying in the market and whatever is being sold is pulling the market down for a very long time. We had seen that on every dip, buying was coming in. Unfortunately, that is not happening and also this is that part of the year where trading investment interest generally comes down. Global fund managers, global investors take a pause and the selling is coinciding with that.

But having said that, in a way the Indian market was poised for a correction and a bit of correction is par for the course. I am not talking about the brutal selloff we saw on Friday. The correction has been substantial and quite unnerving but having said that, I would also put across a point that for a very long time, a lot of investors and a lot of fund managers who were waiting for some correction, are getting an opportunity to pick the stocks they fancy. So instead of panicking and getting worried, it may be a good opportunity for buying into good quality stocks for building the portfolio at this stage.

Whenever the poison gets out of the system, what will be first to recover? Is it going to be more of the same – the PSBs and capex themes or is it going to be a new set of winners?
Sudip Bandyopadhyay: I think it is going to be pretty much the same stocks which we have been bullish on for some time. It will be infra, construction, building materials, and to an extent the PSBs that will see recovery.

We believe the next financial year as well as the next calendar year we will see a lot of domestic focussed businesses doing pretty well. Unfortunately, these companies have not really moved up in valuation the way some of the other sectors are and there is still a valuation gap and opportunity of buying into these stocks. I would say that for an investor, construction, infra, capital goods and some of the select PSU bank buying should be the order of the day.

Is that your advice as well do not try and catch the falling knife but try and take as much profit as we can off the table?
Not now. I think the market has fallen quite substantially and there is absolutely no point in selling stocks if we are holding good quality stocks. The second point I wanted to make is some of these stocks which I have been bullish on like L&T, I believe is going to be doing very well going forward and if somebody is building their portfolio after correction, L&T definitely is a good buy at current level. I am sure there are many other stocks like that which after Friday’a brutal correction look attractive and can be picked up.

Nobody can time the market. Nobody can say that today is the best day and maybe on Monday, we will get an even better opportunity. Nobody is sure but if you are going to be in the market, you might as well take the opportunity of this correction.

Given that banks are where you are placing your bets, would you be in a hurry to buy this decline or would you say wait it out, let a bit of poison get out of the system and then you would start nibbling back into banks or adding more positions to your existing names?
As far as public sector banks are concerned, our view has been that a couple of them particularly Punjab National Bank, Union Bank, are still quoting significantly below one time book and that is where the play is.

One can definitely buy into these PSBs. Some of the other PSBs have moved close to one time book and historically PSBs close to one time book is what they get as far as valuations are concerned. So yes, relative underperformance, relative opportunity is sitting in these two banking counters and one can look at that.

I am not sure whether Monday will be a better day but if one wants to be in the market, one perfectly try to time the market. It is better to get into the market and take chances. It is not that you are buying today for selling on Monday or end of next week. It is a six-month hold/ buy into some of the good quality PSB banks. As far as other non-bank stocks are concerned, my approach would be the same. If you have been waiting to buy some good quality stocks, this is a great opportunity to look into it and buy.

This entire rural recovery theme works very well every year in the month of January. Ahead of the Budget, we see all of these stocks rallying and there is always that preBudget rally. Will this year as well we will see that happening or can we miss the rally this year?
I would like to point out two things; one, this year generally we are all hoping and praying for a rural demand recovery, I am sure all of us are aware of the commentaries of the large FMCG companies. They are all working on rural demand recovery. And expectation is that the festive season as well as this Christmas New Year season rural demand should be back.

The crop arrivals will give the first indication. The government is also working towards doing a lot of things for ensuring rural prosperity and with central elections coming in about 18 months time, there will be a lot of focus on rural India which should augur well for rural focussed companies.

Point number two, our belief is that we will get to see a pre budget rally one again this year. The primary reason is the sharp correction we are seeing and sometime in early January or mid January, we will start seeing a lot of excitement around the Budget.

Remember, this is probably the last full budget of this government before the elections and there will be an effort to do quite a lot as far as public spending is concerned. It is required as well. Also, there are a lot of expectations building around further fertiliser subsidy rationalisation and that should augur for both the economy as well as the fertiliser companies. So one needs to look at the fertiliser stocks selectively. One needs to look at companies focussed on rural India on the back of probable budget incentives as well as rural demand recovery.

What will be that big trade for 2023? Is there any stock, any sector that you would want to highlight which could become a good buying opportunity given the correction from a two to three year perspective?
I talked about Larsen & Toubro. This is one company one should buy and keep in their portfolio. There are multiple triggers around it including the small one like capex pickup in hydrocarbons in West Asia. They have streamlined their balance sheet, got out of a lot of unrelated assets. Their technology subsidiaries are doing exceedingly well, order book is full, execution has improved. There is a lot of tailwind behind it. So definitely L&T.

Other sector or theme I would like people to focus on is auto ancillary. There are fantastic companies which are OEM for global companies and we are into this debate between EV and traditional engines, one does not know which segment will win or how or when they will have complete dominance. But the fact remains that the auto component companies will be viable and will be having their play increasingly more and more as far as auto component per vehicle is concerned.

In an EV their component per vehicle goes up even from here and one should focus on that. So a Sona BMW, Motherson Sumi, Bharat Forge apart from Bharat Forge technology and defence, even the auto component space, are the companies of the future and one needs to have them in their portfolio.