Not taking a risk in a Bull Market is the biggest risk: Madhusudan Kela

Discussion in 'Must-Read Interviews, Articles & News Items' started by Arjun, Nov 27, 2020.

  1. Arjun

    Arjun Chief Executive Officer (CEO) Staff Member

    Mar 19, 2015
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    Madhu Kela, the veteran stock market investor, advised that investors are making a mistake by not adequately participating in this market with a 3-5 year view.

    "Not taking a risk is the biggest risk. In this bull market, you are not going to get anything by keeping your money safe at a 4 per cent interest rate in your bank account. Therefore, not taking a risk is the biggest risk," he said.

    He advised investors to take calculated risks, which suits their appetite.

    He pointed out that some stocks like Jindal Steel and Power have blossomed to become glorious multibaggers.

    "We had 200-bagger from the time we invested in Jindal Steel and Power. We invested at Rs 300 crore market cap, and it went up to Rs 60,00-70,000 crore at its peak. My regret today is that I did not buy enough and did not hold it for long enough," he said.

    Pharma stocks have a lot of upside

    Kela stated that there is a misconception in a section of the market that the growth in pharma is because of Covid. However, while Covid might have added 10-20 per cent of the profitability, Pharma companies were there before Covid and will remain after Covid as well, he said.

    He opined that a lot of the profits reported by pharma companies are sustainable.

    "Mid-sized pharma companies are generating a lot of cash and deploying it, rather than borrowing money. They are not over leveraging. So I think there is still an opportunity on a stock-specific basis," he said.

    He, however, cautioned that a margin of safety is necessary while investing in a pharma company. You cannot buy a very expensive company because regulatory challenges might come up later on, he said.

    He pointed out that in the past, people lost 30-40 per cent or more in pharma companies due to regulatory challenges.

    "Sun Pharma, Ranbaxy and Ipca Laboratories are all very good companies but they have faced regulatory challenges. So whether it is an API or a generic player, you have to know their track record in handling such issues," he said.

    He also pointed out that Pharma companies have enjoyed a tailwind in the last 8 months as FDA inspectors have not travelled.

    "We have to be very careful about plants which are going to be inspected. You cannot give a generic gyan on which pharma company to buy. It is a very interesting subject and you need to have a detailed understanding of what you are getting into. At this point of time, I see no euphoria in the sector even after such a rise," he advised.

    "If you are an individual stock picker, go and buy those mid-sized companies which have survived bear markets, have a great management, execution capability and are going to last for 3-5 years. Companies are really available for cheap, trust me," he added.

    All pundits have failed this time

    "All pundits have failed this time because none of us could anticipate that the market is going to come back so fast," Kela stated.

    He pointed out that revolutionary things are happening in the economy which have not been discounted by the market yet.

    The PLI scheme, for instance, offers incentives worth Rs 2 lakh crore under the PLI scheme which requires a turnover of Rs 40 lakh crore in the next 5 years. If the PLI scheme is fully exhausted, its effect is not yet fully discounted by the market, he said.

    He also pointed out that the concept of PSU companies buying back their own shares is novel as it has not happened in India in the last 70 years. Similarly, the thought of Apple coming in India in a big way is exciting as such event have never happened ever in India.

    "There are so many predictions but we do not know what is going to happen. There is a lot of potential. I repeat my sentence -- at this point, the biggest risk is in not taking a risk," he emphasized.