This earning season may be very disappointing and so will be the next one and that is why it is better to have a safer approach in the market than we had in the past, says the Founder & Director, Elixir Equities.. What are you making of the momentum? There is no stopping the market, but increasingly comments are coming in with regards to the fact that we are perhaps getting narrower in the stocks that are continuing to see gains.Sometimes we have narrow movements in stock prices, sometimes the distribution just expands and we have many stocks doing well. But there is no denying the fact that there is a great deal of liquidity coming into the markets and there is a high degree of speculation also coming through retail traders. I am not sure whether it is a good sign or not and the rate at which stock prices have gone up and the valuations which they are trading at, I would say that from a long term investment perspective, one is to be a bit cautious. It is very easy to get drawn into a bull market like this only to regret a few months down the line seeing the stock prices correct by 10-15%. I am being a bit cautious and I think that as far as the present crisis is concerned we are far from seeing the end point of that particular pandemic. We may have a vaccine sooner or later and eventually the economy will pick up but we have many roadblocks to clear and many challenges to navigate before we can get back to normalcy. Keeping in mind all those challenges and roadblocks, I would like to be a bit cautious. This earning season may be very disappointing and so will the next one be and that is what is keeping us having a safer approach in the market than we had in the past. What else is on your radar? We have had a spate of earnings and everyone is trying to sound upbeat, saying perhaps the worst is over. In auto, production is picking up. Some L&T have somehow managed to come out of a really bad quarter. Going forward, where is your focus going to be? We have got the BPCL divestment agenda on track. What is going to be the top of you mind?See top of mind we want to increase exposure to software companies and this call is coming after many quarters, even many years where because of this pandemic and what companies and individuals have gone through, tech spends will hold up, maybe even grow gradually. In an environment, where a lot companies will post 30%, 40% and 50% decline in profits, software is a sector where you will have at least marginal growth -- 1% or 2% but still there is growth and eventually when the economy picks up globally, we could see them going back to 10-12% type of volume growth. Given the valuations at which software companies are trading, there is certainly a scope for earnings upgrade as well as PE multiples to move up. So that is one sector we are looking at gradually entering. Depending upon risk appetite, we could go for large cap stocks and some of the midcap stocks also have done exceedingly well. The second sector of course is pharma, another safe sector so to speak but strategy wise, we would like to wait to see the pharma company results for the June quarter because there may be a few disappointments over there. We could see a stock price correction on account of the disappointment but that would be a good entry point because eventually the long-term dynamics of the industry has improved. At the same time, most of the large, interesting companies have done a lot of restructuring of their products and focussed on certain geographies where they are strong and certain brands where they have strength. I think that will certainly pay off very well in the longer term. Again very high return equity, low debt, good quality of balance sheet and corporate governance is what draws us to pharma companies and so that is the second one. The laggard has been the banking sector and one could look at that sector as well because eventually when economy gets back to normal, these companies will also do exceedingly well and there a beaten down stock like IndusInd Bank, IDFC First, RBL or even some of the other NBFCs like L&T Finance or Piramal Enterprises may outperform. But you need to have a risk appetite for those sort of beaten down tier II, tier III companies in the financials. Do you like any of these beneficiaries of the work from home or Robinhood traders or Hobby traders -- whatever you may want to call it?Not really. It is best to avoid buying these stocks purely because we are seeing a surge in retail volumes. I have been a stock broker for the last 25 years and I have seen many such phases where retail volumes have moved up and a lot of retail investors or rather traders get into the act only to be disappointed over the short to medium term. I am very cautious about such high retail volumes taking place. Eventually, if institutions are not buying, if long term smart money is not buying, then one cannot expect the markets to move up significantly higher and eventually the volumes also will start correcting and retail investors or retail traders so to speak, will start to make losses. But the bigger theme over here is financialisation of savings and that is certainly an investment theme which investors should bank on over the longer term. Keeping in mind that particular theme, some of the beaten down stocks which benefit clearly from that trend is something like an HDFC AMC which has corrected by 25-30% from its peak. Of course, the mutual fund industry has got hit by significantly lower increases in AUM and funds flowing into their schemes but that is a temporary thing. Over the medium to long term, we will see money flowing into mutual funds and the larger ones which have a good brand and track record will get majority of these inflow and should be able to get back to their earlier highs which they have seen on the stock price as well as their performance.In a way the asset management companies also benefit from the fact that irrespective of whether the country is working or not, whether there is a lockdown or not, they still get paid on account of managing those funds. Their management fee remains absolutely intact and is not impacted by activity level in the economy. I am quite positive on something like Nippon Asset Management that is Nippon Life or HDFC Asset Management. After a long time these stocks are available at reasonable valuations. They are always quite expensive because of the popularity of this financialisation of saving scheme and that may do very well going ahead and even as part of longer term strategy, we need to buy into the insurance companies. I know this quarter has not been great for most of the life insurance companies because they have not been able to increase as they have seen sharp decline in their new premium income, but that is because of physical controls and curbs and once they get lifted, you will see premium incomes going back relatively higher. It seems Amazon is in preliminary talks to buy a 9.9% stake in and Reliance Retail. Reliance is a conglomerate which is looking at excessively deleveraging, trying to cut out strategic deals. They are a conglomerate with a plan and pandemic or not, they are going ahead with it?Yes, absolutely. They have really surprised the Street and if this deal were to take place, then it would be another feather in the cap of the promoter and it would be a fresh trigger for the stock to trade even higher. The only question which arises in mind is how is the value unlocking going to take place because more and more investors are interested in the retail venture and the digital venture and by buying into Reliance Industries which is the holding company they do not get a direct exposure to those businesses. That is something which in the longer run will be revealed as to how the valuation will get unlocked from minority shareholder point of view but nonetheless, by getting such partners and scaling up those businesses, a lot of value has got created and given their position, it could be pretty easy for the company to grow the business, get scale and eventually build even more value for the company per se. So it is very positive if it does take place but from a consumer point of view, it may not be the best option because ideally as a consumer, I would like to have more options -- be it Jio Mart or Amazon or Flipkart. If these companies are aligning with each other, then you can expect lower discounts going forward. What do investors do? Do you profit take a little bit or do you think Reliance is stepping on the gas pedal in full accelerated mode? The story is still pretty much intact and there is no need to budge from your investments even if it is for the near term, because I do not think the stock is going to let go in any hurry?Yes, it is a moving train and trying to get into a moving train is very difficult. You may get surprised if there is a correction. I would say that for an investor who is already invested at lower levels, it is a very big decision just to stay invested and never mind how high the stock price goes up and not to keep trying to assess where the top is for a stock like this or what PE multiple it is trading at and just ride along. But for an investor who wants to increase exposure to Reliance, I would say it is better to do so at a correction. It is not highly unlikely that you would have a market wide correction. On the whole, our view on the market is slightly negative. You could have a 10-15% type of a market wide correction and in line with that, Reliance would also correct and that may be a good entry point to get into Reliance. I am not in favour of chasing the stock at these levels and I would just like to wait for a correction and then look at maybe entering the stock. What is your takeaway then from the kind of trends we have been observing lately?We are enjoying the upswing which we are seeing in the stock prices. A lot of midcap stocks have also got into the act and from time to time, we see sector rotation as well. But as I said, one should be a bit cautious on high PE companies. We saw what happened in the case of Avenue SuperMart where the results were very disappointing and the stock has started to underperform. Something similar could be expected in some of the high consumption stories as well, the likes of say a Titan or a Jubilant FoodWorks or maybe even an Asian Paints. I am not convinced that this nascent recovery which we have seen in the economy is sustainable and anyway a V-shaped recovery can’t be expected with the stop-start of the economy in various cities. It only increases the challenges for domestic focussed businesses. From a strategic point of view, I would not want to increase exposure to equity. In fact, one should advocate getting a little bit into cash at every opportunity. There will be a correction, it is just a matter of time and it could be once the earnings season is over and we see the kind of effect that the lockdown has had on the performance of companies. That may be a good opportunity because hopefully there will be some visibility as far as the performance is concerned, post some sort of normalcy coming into our country.