Deep correction near term unlikely; buy on dips: Madhu Kela

You spoke about high quality stocks with high valuation. As a professional investor, what is your approach to these sets of stocks? For example, pharmaceuticals; great companies, very high valuations right now in many cases. Is there enough margin for safety to go out and still accumulate these stocks or do you feel nervous?

A: You have to have a portfolio approach because we do not know. I have learned one thing in my life: highs are higher than what we think and lows are lower than what we think. But, it is not for me to decide what is the highest valuation and when I should exit. Till the time these companies are still delivering 20-25 percent plus earnings growth and the broader environment is still in their favour, we are running a portfolio approach rather than running a skewed approach. However, we keep evaluating on a very constant basis. There are one or two pockets of companies that are becoming expensive even from a three year perspective; it is very hard to make money even if I assume 20-25 percent growth. And we will be diluting our stakes in those pockets. We will be selling off and getting into something which is still reasonably valued. In pharma sector still there are companies that are trading 18-20 times from one year, one and a half year forward perspective. That is not expensive, but there is the other pockets in the same sector where you find companies are trading at 35-40 P/E multiples. We have to be careful about individual companies in these sectors which are in my view, have extended in terms of valuation. So, it is a bottom-up approach in these sectors rather than top-down.

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