As we close the month, the midcap index returned almost double digits and Nifty only returned 5%. What awaits you for June?
The market performed very well in May. What’s intriguing is that the large cap rally has been led by financials who are supposed to be the hardest hit due to lockdowns, impact on asset quality, etc. Many banking directorates have also underlined this. The other thing is that the Indian market ended up outperforming most of the world markets as well as emerging markets. This is all surprising because it has also happened in the context of foreign investors who sell continuously almost regularly. They buy sporadically, but on a net basis, they are sellers. So it is difficult to understand the extreme strength of the market in the context of what companies have said on their conference calls about the impact on their business, the impact of good commodity prices, etc. On an absolute return basis, it will be difficult for the benchmarks to give a meaningful return from now on.
Why did BPCL crack even after a big dividend? It appears that his debts are being liquidated to keep the divestment moving on the right track. When all the oil marketing space is reassessed, BPCL should have increased, but the stock remained stable.
This is because there is actually no story at this time. There could be some increase in refining margins as the driving season in the US and Europe could be very strong this summer and supply could be limited. It will be difficult to see a serious buyer. If you have a set of 2-3 companies in India buying assets from all the other companies, they will end up buying only BPCL. I don’t know what kind of divestment that might be. Ideally, the government’s strategy should be to get FDI and sell BPCL to good global cooperation taking care of all their apprehensions. But that doesn’t seem to have happened. So BPCL is not a divestment bet for me. In absolute terms, I don’t see much of a benefit.
Where in IT would you find opportunities to add new positions?
IT is in an ideal position for growth due to the recovery of the global economy. On the other hand, the one big factor that works against many IT companies in the short term is the significant strength of the Indian rupee. The rupee is expected to decline after March because January to March is a strong period for the currency. As a rule, from March, the rupee has a downward trend. He looks strong and almost sets a new 52 week record. I suppose there could be a threat to the margins of IT companies that are not yet integrated by management or analysts. Many of these actions have actually worked very well. So I would be a little upset and say if people have a lot of exposure to this industry, they should take a profit at this point.
People buy because refining margins and petrochemical demand are higher. What is your opinion on the stock?
Reliance evolves only because of its traditional activities. Nobody is talking about next-gen businesses because nobody seems to know what Jio Platforms is doing outside of the small stillborn ecommerce business and the telecom business. A call option on the rights issue creates a certain buzz. Everyone knew there was an increase in petrochemical margins so I’m not sure why it suddenly became a novelty that day. People had to get into Reliance just because it underperformed so badly. They benefit from higher margins in petrochemicals and refining margins could increase as fuel demand picks up in the coming months.