Are we in for a recession because if that is the case, the next couple of years are going to be painful?
It depends on what you define as a recession. If you are talking about the US, 100%, it is already in recession. The headline indices are always going to be lagging the reality on the ground but I tweeted prior to the very poor sales being reported by the retailers in the US. I keep talking with people on the ground there and they told me that there was a big big slowdown in consumer spending and just a week after that, the numbers that came out from the retailers which just knocked the bottom out of the retail stocks and of course the market really collapsed after that.
So the US is definitely in recession for sure. Several other parts of the world have been in recession and Europe has been in recession for as long as I can remember. India is not heading for a recession but we are heading for a slowdown. I think we should accept it as part of a global macro problem, rather than anything extremely problematic with India. We must accept that there will be a moderation in growth.
I know you warned everyone in January as to what is coming but how can you correct it now? Why is it that you feel that markets right now are looking like the market in 2000?
No, I said this in January and I always say that between Friday and Monday a lot can change. So, let us not bring a view of January into relevance today. Of course, what has played out in the last six months from the time I wrote that article in your parent publication Times of India – I was hoping I would not be right but it has turned out to be fairly uncomfortably accurate. When you have been around a long time you know the signs. It does not matter whether you get it right down to the last week or the month but you know broadly in a certain period, a certain situation will occur and in January it was very apparent that 2021 which was an absolutely crazy year in terms of startup funding and in terms of our new age IPOs and retail investors piling into stocks they had no idea about – all were ending in a trainwreck. It does not take you 35 years to figure it out.
The biggest problem is that, and I say this with all honesty, that Indian fund managers, Indian investors, Indian HNIs in the overall context of Indian investors – all categories included – have no capacity for nuanced and balanced thought. For us, it is always black and white and there is no grey zone that can permeate your investment thought.
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Life is grey, life is never black and white and if you try to tell people, you are going to get shouted down. It is better to just keep quiet and do what you have to do. But since we, as investor community, are unable to accept that while in the US people have warned of inflation right from the middle of last year, and it is a more nuanced thinking velocity that sophisticated investors have in the US, that we must adopt in India if we have to mature in our investment thinking.
So, globally we are in a major problem. Simply the fact that we have had a 10-11 year bull market coinciding is a very good thing. It has been a bull market that has defied all logic, imagination, longevity statistics – 13 long years without a break, without any meaningful correction globally and it was a market on steroids like Ben Johnson. That is exactly where this global macro and the global market situation is. But within that, we have India and Indian smallcaps as our non-steroid driven Carl Lewis’.
We are looking for Usain Bolt. Who is Usain Bolt now?
Yes, that is true. Ben Johnson is the poster child of all that was wrong with his training and our bull market from 2009 has been nothing short of a Ben Johnson because on their own, economies were hurting and the Fed and other central banks just stimulated a lot of the steroids into the system of an average runner and made him into a superstar. But I used to always wonder and in all honesty that how can there be no cost?
As an athlete, if you take steroids, you will either get caught out or you will have severe health problems. It cannot be that you will neither get caught out nor will you have any health problems. I used to wonder about how could the continued steroid of QEs and the rates going to zero and even negative not have a cost? But there is always a cost to pay. Now that the bottled genie is out, it is going to trouble us all for the next year or two.
The data is clear. If we have had a preceding bull market of 10-11 years, we will have a succeeding bull market roughly at least 20-30% of that preceding bull market period. So if you take a 12 or 13-year bull market, you could easily be in this pickle for a two or three year period on a global basis. But within that we have our Indian smallcaps. They are Carl Lewis and I am betting on those.
Would you want to spell it out because smallcaps is a very large pool?
For example, there is an ice-cream company in . I bought the stock about four months back. It was maybe Rs 1000 or Rs 1100, today it is I think about Rs 1800 or Rs 1900. So it is not all doom and gloom. Even in this terrible market situation, if you work hard enough, if you go kicking the tires, looking under the hood of companies across the country, rolling up your sleeves and going underneath the bonnet, a lot of them have a lot of stuff hidden underneath.
One can find two, five, even ten such stocks that are good for the next two or three years. So why should I be bothered about the Sensex or the Nifty because I do not own a single stock in those nor do I have any desire to own them. There are plenty of stocks of the kind that I mentioned out there. My travel bills have gone up dramatically, particularly to India for this same reason. We are in an overall bear market, for that to turn out well, I have to work a lot harder than if we were in a raging roaring bull market.
The general view which you have expressed in the past is that markets are all about understanding cycles and you look at that ticker more than anything else. So what is the ticker telling you about technology now? I am talking about Indian IT companies. The global technology companies got smoked.
US recession is definitely not good news for our companies. I have been a bull on these companies for the longest period. They are great companies with fantastic managements. They are going to face headwinds given what is going to unfold in the US and I do believe the US is just at the beginnings of a fairly severely recession and corporate profits will get squeezed.
FAANG stocks have hit a wall in terms of their growth. They cannot grow incrementally much more. Facebook, Google, Amazon have only India, no China. They have been shut out of the biggest consumer markets in the world. They have only India to rely on for growth and India at the end of the day is a tiny consuming market for the kind of pricing these guys want.
So they are back with the US and the US consumer is hurting. If you are earning $60,000 in the US, you are taking home nothing at all. So in the US there is going to be a corporate profit slowdown and in that scenario, there will be a cutback on spending and maybe the pricing itself might suffer that these guys were offering to Indian IT companies. I think Indian IT companies may not be as happy looking forward than they were looking back.
Next three to six months, is one better off putting money in a fixed deposit rather than trying to chance your arm in the market?
Fixed deposit is good I mean as long as you do not go and pick
and whatever other banks that keep going bust every once in a while. is a good bet but I think this is a great market for working hard and picking a portfolio of 10-15-20-25 stocks. This is an absolute no-brainer of a market. Like I told you, one stock has gone up 100% which I was lucky enough to own in the last four months and the worst carnage we have seen in three years
From now until the next 12 months, there are going to be at least 20-25 good names that will be up between 25% to 100% from the point of this interview. I would be very surprised if we do not get that kind of bottom-up stock picking opportunities.