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Retail investors are more often than not swayed by market perception about corporates and this is why many stocks command very high valuations, says G. Chokkalingam, Managing Director and Chief Investment Officer, Centrum Wealth Management. Centrum has presence in equity, debt, institutional and retail broking, wealth management, foreign exchange, infrastructure and realty advisory besides, margin funding and loan against securities.
In a chat with Business Line Chokkalingam was categorical that inflation curtailing measures should not end up choking the performance of India Inc and in turn public sector banks.
Excerpts:
Which sectors within corporate India are you concerned about?
Infrastructure, power, realty and shipping will continue to bleed while cement is seeing lesser offtake.
Mid-sized companies with forex liabilities will have stretched balance sheets, though they can adjust it against reserves.
PSU banks, which are compromising on asset quality in the quest for growth, will now need to introspect.
Market capitalisation of many mid-caps has eroded by 80-90 per cent in the last two years.
Are worries related to inflation stemming growth?
The mindset towards inflation has to change. We have been living with 10 per cent inflation for quite some time and it has come down to five. No one seems to understand this.
How many IT companies have managed to grow above 30 per cent in rupee terms?
The rupee-dollar has negated the decline in commodity prices even though nine out of 10 have declined. The Government has to realise that inflation is no longer the problem.
Will the current situation see FII outflows?
The only saving grace is that at the current exchange rates, about three-fourths of the FII inflows that had come in, are making losses and the risk of outflow is just not there. They have made a loss of 10-40 per cent on their portfolio, depending on their allocations.
There is nothing left to take away.
A bumper harvest will take care of inflation. But, one cannot keep punishing corporates for CPI (consumer price index) — high food and fuel prices — which are exogenous.
What should be done?
Long-term measures need to be taken — proper cropping, policies on coal, oilseeds, gas and outward FDI need to be implemented.
On gold, the government has done well, but we need to also monitor outward FDI as $10-16 billion has already gone out.
Your take on exiting a stock…
It is an art which is far easier than entry. Valuation for exit (and entry) is a combination of normalised P/E (price to earnings) and market perception driven P/E.
The perception driven P/E does not sustain and can fall drastically.
People should understand structural changes in businesses. One should not go by past history every time.
How do you assess the quality of corporate governance?
Promoters should have at least 50 per cent stake. Interest payment should not be more than one-third of operating profits.
Then 45 per cent should be for tax and dividend.
The remaining 22 per cent earnings must be retained to service debt. Further, 20-25 per cent of the net profit should be paid out as dividend consistently.
What percentage of one’s portfolio should one invest in equity?
Not more than 20 per cent, as money is hard earned.
> raghavendrarao.k@thehindu.co.in
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