My Sensex target of 42,000 was so outrageous even my office staff did not buy stocks
In September 2018, when the stock markets were crumpling, Ridham Desai had come out with all guns blazing and confidently predicted that the Sensex would surge to 42,000 within the next twelve months.
.@MorganStanley raises #Sensex target to 42,000 from 36,000. Ridham Desai (@rndx1) on Indian market, ₹ & more #Live https://t.co/tTVmqsTcWQ
— CNBC-TV18 (@CNBCTV18Live) September 18, 2018
Naturally, the prediction was met with skepticism and nobody paid any attention to it.
“Even my office staff did not buy stocks,” Ridham chuckled in amusement at the extent of disbelief amongst the populace.
However, presently the stock markets are surging like rockets and Ridham’s target of 42,000 is within touching distance.
In fact, since Ridham’s famous prediction, the Index is itself up a fabulous 17%. Individual stocks are obviously much, much higher.
#MarketAtRecordHigh | #Nifty gains more than 17% from the 52-week low of 10,004 hit on October 26, 2018 to the record high of 11,761. The NSE benchmark Index surpasses earlier record high of 11,760.20@_anujsinghal @ShereenBhan pic.twitter.com/niPnTcux9b
— CNBC-TV18 (@CNBCTV18Live) April 3, 2019
Should investors worry about higher valuations in times of strong global inflows? Morgan Stanley’ Ridham Desai (@rndx1) shares his perspective.
Read: https://t.co/okZTZH2p7l pic.twitter.com/zvFevXqeTL
— BloombergQuint (@BloombergQuint) April 3, 2019
Skepticism is still there, people haven’t participated
It is quite obvious to astute observers that people in Dalal Street are not gung ho about stocks but are quite wary.
Ridham confirmed that this is indeed the position.
“There is still a fair bit of skepticism out there. I don’t think people have participated. It has all been too quick and swift. There is too much of pessimism from October, November, December and to a lesser extent to January and February. The pessimism is still there in the air. It has not gone away. And therefore, the markets have little bit to go in the short run,” he said.
“Equities remain a long-term asset class. These things keep happening and they go up and down in the short run. But investors are best advised to just hang on there and create a retirement fund out of equities,” he added.
Valuations are not rich in view of “ferocious earnings cycle”
Ridham tackled head on the predominant worry of investors that stocks are now overvalued after the raging rally and it is too late to dive in.
“I don’t think the market is rich,” he asserted in a confident tone.
“It is 3.2 times price-to-book value that is bang in the middle of historical range of 2 times and 4 times,” he added.
Ridham also provided a complicated explanation about how earnings are “not secular but are cyclical in nature” and about the relationship between “profit share in the gross domestic product” and “historical averages“, much of which is not intelligible to me.
“The earnings cycle will turn. It is not fully pricing in what would be the ferocious earnings cycle over the next five years. We could see earnings compound at 20 percent for five years and I don’t think that’s in the price,” he opined.
“We have some journey to go for valuations to get worrying,” he confirmed with a soothing smile.
The Sensex has risen to a record and is trading higher than its historical valuations.
Still, Morgan Stanley’s Ridham Desai (@rndx1) says the valuations aren’t expensive and there’s room for growth: https://t.co/okZTZGKOfN pic.twitter.com/rM2uNwVnCF
— BloombergQuint (@BloombergQuint) April 3, 2019
Never too late to invest in equities. I made 7x from balanced fund despite investing in highs
“It’s never too late to invest in equities,” Ridham confirmed, endorsing the timeless wisdom of Warren Buffett and Peter Lynch.
He cited the example of an investment in a balanced fund that he made for his daughter in 2000 when the markets were surging at all-time highs.
That investment is up 7x at a compounded annual return of about 12 percent.
“It’s not a bad outcome, even though I had invested when markets were at a high. It evens out over time,” he said.
Ridham explained that “genuinely long-term investors” should not worry about timing the markets.
“Buying at an all-time high is not a problem. For investor with 5-10-year view, it’s not a problem. The chances are India will do well as an economy and a stock market and over 5-10 years you will make more than adequate returns. Equities will eventually outperform bonds, fixed deposits and real estates,” he said.
Few takeaways from Morgan Stanley's Ridham Desai's (@rndx1) conversation on BQ Conversations.
Watch LIVE NOW: https://t.co/vUwdlbYsCT pic.twitter.com/oNRVfouVX0
— BloombergQuint (@BloombergQuint) April 3, 2019
Markets will crash if NAMO does not get a majority
“If India decides to vote a fragmented government, there will be a correction,” Ridham said in a chilling tone.
He explained that the market is pricing in a majority or a near majority for NAMO and that he will snare 270+ seats and form the next government.
However, if RaGa or the Mahagatbandhan play spoilsport and grab more than their quota, the market will sell off, he opined.
“If India decides to vote a fragmented government then you will get perceptible correction in stocks. Going by what I feel is going to happen in the next four to five weeks is we will be fully priced in majority or near majority government,” he said.
Traders should bail out now, investors can stay put
Ridham gave yet another example of his astute mind by drawing a distinction between how traders and investors should behave when the markets are at ATHs.
“This quarter may not turn out to be a very good quarter in terms of share prices. So, India may underperform EMs. By the time, we get to the end of May the market may have priced in election outcome and then you will get some correction in June. If you are a trader, you want to sell this as it crosses all-time high. Now that it has touched an all-time high, it has made a move ahead. And then you have to lighten up, wait for the elections to get over and then come in. That’s the better risk management for a trader,” he advised.
However, he added in the same breath that his advice does not apply to investors. Investors should tighten their seat belts and brace for turbulence.
11 top-quality stocks to buy now
Theoretical advice is one thing. Actionable stock ideas is another thing.
To cater to the latter requirement, Ridham has recommended that we tuck into 11 fail-safe and high quality stocks.
Morgan Stanley's Ridham Desai (@rndx1) believes that the gap will close with the broad market rising rather than the Nifty falling and recommends 11 midcap stock ideas.
Read: https://t.co/CpIDYfCzM1 pic.twitter.com/dkf72bpzL6
— BloombergQuint (@BloombergQuint) February 11, 2019
| 11 Best Midcap stocks to buy now | ||
| Stock | CMP (Rs) | YoY Gain (%) |
| IGL | 282 | (7) |
| Indian Hotels | 136 | 2 |
| Cyient | 604 | (3) |
| IPCA Labs | 778 | 29 |
| Just Dial | 476 | 2 |
| Jubilant Foodworks | 1300 | 29 |
| Oberoi Realty | 468 | (2) |
| Prestige Estates | 194 | (40) |
| Edelweiss Financial | 141 | (48) |
| Apollo Hospitals | 1141 | (6) |
| Amara Raja Batteries | 740 | (11) |
Morgan Stanley MS maintained its previous 'overweight' view on the company, with a price target of Rs 1,065. #ETMarkets #amararaja #Johnsoncontrolshttps://t.co/mGOO3jACBQ
— ETMarkets (@ETMarkets) April 4, 2019
Yes in the next 6 months amara Raja may remain range bound but eventually the business will do well in the long term as this is a duopoly business where it controls over 45% mkt share
— Avinash Gorakshakar (@AvinashGoraksha) April 5, 2019
Morgan Stately sold a huge chunk of Just Dial yesterday.
I don’t understand what is great in Indian Hotels future outlook. It is an asset heavy company with mediocre returns. The same is IGL where the input gas prices have been increased whereas increasing city gas prices would require regulator’s approval, public hearing/comments and a time lag between increase in input prices and output prices.
Every upcycle has a new side hero. After the cycle ends he goes away riding on a cycle. Remember Shri porinju ji?
This guy doesn’t care about retail investors looking at his past interview we can easily able to recognize his dual char. as at first the buy some shares heavily then while selling they try to paint the story looking rosy and when the retail investors get into those stocks these guys sold most of their chunks.
In my 11 years investment journey I found most of these people are exactly similar. Do your own research and then only investment else will lose.
I agree, with friends here who have rightly expressed caution on IGK, Just dial, Indian hotels etc.
Gautham
Sensex at life time high and PE levels reached exorbitant 28-29 levels. Where as RBI reducing rates because of slowing economy. Conflicting signals. It could have been different had economy growing at scorching pace but prices of stocks reflecting as if economy is peaking. Here is the long term market expert advising steam is still left and market is cheap. Important message is look what people are doing rather than saying.
Just cant wait for a kichdi govt to come. Wish the market just craters and all these so called gurus lose their pants. Will give a great chance to scoop some good companies at cheap.
There are hardly 50 good compnies with secular growth story ,and almost half of them are known to every body.So much money to chase such small no of companies, Good stocks will never become cheap unless there is all out war.These compnies will not correct substantially ,either same govt ,change of govt,khicdi govt .So just keep on adding these gems of India ,when ever one has surplus money for 5 years or more.
No wonder Axis Focused 25 is doing well. PSU banks, AI, Income Tax and ED were destroyed due to political interference. In recent times, it is the turn of CBI and RBI. Current Gov reduced the repo rate twice in two quarterly reviews and again everyone knows what is behind such an action. The problem is data that we are getting is no more independent and fully biased.