Ridham Desai Morgan Stanley Portfolio

Ridham Desai, Managing Director, Morgan Stanley has suggested that the time is ripe for investors to buy stocks. Ridham Desai gave strong logic to support his theory. First, he said that the valuations are reasonable because all the bad news had been priced in. Assuming that things were to still go bad in Europe, the downside risk on the Nifty was about 10-12% and if that was done, the Nifty would have hit bottom valuations on a historical range. He explained that at these levels, the Nifty usually tends to trough and give very strong returns on a 12 months forward basis.

Ridham Desai emphasized that if investors bought now, they could make about 40% returns with nearly 95% certainty. Investors were almost guaranteed positive returns, he said.

Ridham Desai stated that investors should start shopping for stocks now. He advocated the time-tested theory of buying in bits.

As to the sectors that investors should put their money into, Ridham Desai stated that as the inflation was receding, monetary easing in the form of lowering of interest rates was expected. The stocks that would benefit the most from any lowering of interest rates would be the rate-sensitives like Banks and Autos. Accordingly, Ridham Desai advised investors to buy bank and auto stocks.

Ridham Desai is also bullish on discretionary consumer stocks. He said that the consumption story is still in good shape and they would also benefit out of lower interest rates. He advised investors to buy consumption stocks because that sector would benefit from growth, quality and valuations.

On the question as to whether investors should avoid investing in June given that there was so much event risk, Ridham Desai explained that the maximum point of return is at the maximum point of uncertainty. So, as the environment now is highly uncertain, it is the right time to invest. He expressed confidence that the returns that investors would make when the situation turned normal would be very high. Ridham Desai once again emphasized that from a portfolio strategy perspective, investors should deploy their funds in a staggered manner and buy stocks at various levels. He advised that investors should put some money to work right now and then wait. If events turn sour, investors would get lower levels to put some more money to work. If they don’t, then the index would move up and they could buy some stocks then.

There are a lot of quality companies trading at very attractive valuations with fairly good earnings prospects over the next two-three years not withstanding the current macro situation, he said.

Ridham Desai drew from historical data to back his hypothesis. He pointed out that when India’s growth rate was 5% in 2002-2003 period, it didn’t look very good and stock markets were in bad shape. There were three and a half years of zero returns or even negative returns on stocks. Valuations were cheap, the macro was not good and India’s fiscal deficit was very high. There was a current account surplus because the only driver for growth then was government spending and both consumption and investments were dead. However, in the subsequent 12 months, the market was up 84%.

Ridham Desai said that the two periods were comparable and so it is best to buy equities when the macro is dull and earnings outlook is foggy but valuations are cheap. That’s when investors make the most money in equities he said.

Ridham Desai cautioned that investors have to be patient and smart. They must not put all their eggs in one basket on a single day. But if they spread out their investments over time, they would end up making money over a 12-24 month timeframe he said.

So, the question is what stocks would you find in Ridham Desai & Morgan Stanley’s portfolio? The answer is that you are likely to find Bajaj Auto & Tata Motors, both of which are wll managed growth stocks that will benefit from the lowering interest rates. Among banks, Ridham Desai will definitely prefer HDFC Bank which is on a scorching growth path and State Bank of India for its cheap valuations. Among consumer stocks, Ridham Desai is likely to set his eyes on Page Industries which, while expensive on valuation parameters, has delivered on the growth front.