When we last interacted with you, you were very bullish on the entire banking theme and you did say that banks would lead the outperformance in the market. Now, over the last few months, we have seen that in some phases private banks, and in other phases, PSU banks have led the charge. If you had to pick out your favourite theme within the financials pack, would it be private, PSUs, or now would you be shifting focus to NBFCs?Gautam Shah: Honestly in terms of valuations and chart setup, I would go with the PSU banks. You still get some of these top PSU banks at 7-8 PE, which is quite incredible at these prices and the kind of earnings trajectory that they have had. The chart setup remains quite solid. The ratio charts are in great shape. If the banking index has to continue to do well from here, which is my view, and it is likely to get closer to the level of 60,000, PSU banks is definitely right on top of the list followed by the NBFCs where stocks like Bajaj Finance, L&T Finance have all done so well and are likely to do much bigger things going forward.
Third on the list will be private banks not because I dislike it, but the fact that they might not generate super normal returns from these levels. So, that is my picking order, PSU banking, NBFC, and then private banks.
What is your view on gold and silver? Precious metals have followed different patterns now. But what is looking better, gold or silver or both or none?Gautam Shah: The last year-and-a-half has been all about gold. Gold has doubled in value. We started covering it at Goldilocks at levels of $1800 and we played it all the way to $3,450-3,500 and we just let go of it last month because I felt that it was a little overdone. Most of the positives were priced in and it has gone into a longish consolidation phase which is going to continue.
But over the last few months, we have been very bullish on silver. It has done much better than gold after a long period of time and a much larger 20-25% move on silver is coming. So, if you are booking profits in gold, this might be a good time to top up on silver. Looks like a large mega trend is coming for this commodity.
What is your price target for silver by the time this silver bull run reaches its climax?Gautam Shah: The late Rakesh ji (Jhunjhunwala) always used to say that trajectory is more important than the magnitude. I do not want to commit to big numbers, but if everything goes as per plan, if you have to take a 12- to 15-month view, $43 is a medium-term target and $50 on silver is probably a slightly more longer-term target. Now, that is a good 40-45% appreciation from today’s prices.Markets are at a very interesting juncture because we were just discussing that for June, the markets have spent most of the time consolidating in a 700-point range though we managed to break out of that. What is the best strategy to adopt right now? The reason I asked this is because sometimes in technicals, it is good to ride the trend, sometimes it is actually better to sit on the sidelines and sometimes it is good to play with some of the option strategies at play. What is the best trading strategy and on data points, what traders should look at this point?Gautam Shah: Wealth creation is only made by time in the market and timing the market. I think that is most important and it is important to ride the trend over many weeks and many months. As we put out in many of our notes at Goldilocks, recently that have the mind of a test cricketer right now, because if you think like a 20-20 wicket and if you start getting in and out of the market on a daily basis, you will miss out on the large moves and there are some wonderful large moves that are playing out right now. So, with most of the local and global stress out of the way in some sense in the last four months, do not think of the next 10 days or next 15 days or 30 days. It seems as if the market will be sorted for the next three to six months unless something out of the box happens in this world which we all do not know. But as per the current chart setup, plan for the next three to six months and stay as a long-term investor, ride big trends, and look for bigger returns and the market will reward you.
Is that the view and the strategy people should adopt when it comes to the consumption space because that has been lagging ever since the last one year or more? We have seen a lot of push from the government, but consumption in the rural areas is not seeming to pick up. Do you believe this long-term wait-and-watch strategy could also work for the consumption and maybe could give good returns, let us say six months to one year down the line.Gautam Shah: I do not think so because the problem is that the ratio charts are not in great shape and that is exactly the point that I made earlier that the old winners of the last three years are not performing anymore, are not firing in anymore and anyway there are questions being raised on the pickup in the Indian economy.
Given all of that, I do not want to commit capital into FMCG and consumption on an overall basis. Many of these stocks are super expensive, you can keep debating how Asian Paints is a great company, but there have been no returns for three, three-and-a-half years and still there are questions being raised and they can keep underperforming for 10 years but that does not work as a model. So, be where the action is, be where the strength is, be where the fundamentals are, and be where the market is recognizing the fundamentals and I mentioned the three or four pockets which we like.
