Volatility: Don’t miss out on the action! Volatility is high and both short and long positions are bought daily: Ajay Bagga

What is the strategy at this point? Should I invest fresh money right now in this market or just sit on the sidelines and ride the trend?
Ajay Bagga: It would be better to stay on the sidelines. The positive thing is that volatility increased only in equities and the stock market. Foreign exchange marketLast week, interest rates and credit markets did not experience any surge in volatility, so it was not a widespread panic, even though it might have seemed like it, as leveraged positions were trying to make money wherever they could.

We even saw gold go down because gold positions were booked and used to liquidate leverage. We had a rather disorderly liquidation of yen carry trades leading to event risk and risk aversion in equity and currency markets. Money flowed out of emerging market currencies and the beneficiaries of the carry trades, such as the Australian dollar and the Mexican peso, were the currencies that were chosen and the stocks that we have seen around the world.

As for recovery, it needs much more time. Some data shows that once the US VIX index goes above 35, it takes about 170 days on average to get back down from 17-18. So, the starting point was about 20, it went up to about 38.5 and is now slowly coming back down, but it is a very laborious process and if we add to that a bit of geopolitical risk and a dash of a slowdown in the US economy, we have the ingredients for the market to continue to rise. I would say that a better strategy would be to hold a sideways position or wait this out as both short and long positions will be bought on a daily basis because volatility is so high.

I’m curious to hear your thoughts on some of the new items that have come out. On Tuesday, Unicommerce was published, as well as Brainbees or FirstCry and of course the recent IPO of Ola, which has had a stellar debut and performance. Have you invested in any of these IPOs?
Ajay Bagga: So, I’m not talking about particular actions.

Any topics you liked in the market?
Ajay Bagga: Overall, we have seen significant oversubscription in IPOs and that is a function of rising share prices. So, we are probably somewhere in the middle of the IPO cycle and we are seeing very strong share prices rising, that is the driving factor, it is not per se the quality of the company but high margin liquidity that is driving the growth. IPO The market seems to be a bumper year for primary markets. There is good liquidity in secondary markets as well, but why are we stagnating? We are stagnating more because of global issues. So, the primary IPO focuses people’s attention on a few days’ worth of issue and very focused publicity, focused media presence and that is what we are seeing – people have been getting good returns in terms of investment on a leverage basis for a few days and getting good returns, that is what is working at the moment. The fear is that especially in the SME segment where any kind of paper is getting a strong over-demand, the problem is when those chickens come home to roost. But we are still in the middle of the cycle, so there is still a long way to go before we get to that froth or euphoria. But the secondary markets at the same end are suffering because the IFIs are pulling out money and secondly because of the global or micro risk that has happened.Do you think much of the uptick in EMS is behind us now?
Ajay Bagga: No, the valuations are quite high, that’s the risk we’re facing. So, yes, a couple of years of runway is already priced in, but the scope is huge. Just the size of our market and then the size of the global market for EMS players if they can offer products for global markets, that’s huge. So, there will be parallel introductions of related products and more lines coming.

But the problem will be execution and price, those are the things. We have to improve logistics. We have to improve many other non-fictional issues in the economy and we have to move up the value chain. But China has done very well. Right now, it is between us, Vietnam, Mexico and to some extent Indonesia, that these players are entering Malaysia, again a smaller market, but in terms of manufacturing, they can compete with us. So the room for manoeuvre is huge. Execution is an issue and valuations are already quite high. So as an investor, you will struggle at the moment.

If I could find them cheaper, that would be better. Otherwise, the way to go is to keep investing in them regularly, but the business models are very good. The business models are good, but the valuations are too high at the moment to justify a new investment. So, the best thing might be to invest regularly, buying a little bit every month, building up a position like that and waiting for a correction.

No Apollo Hospitals Of course, we were talking about your earnings, but within the healthcare space as a whole and I’m going to include the diagnostics space as well, do you still think there’s value on the table because a lot of these stocks are already up a lot?
Ajay Bagga: Once again, valuation is an issue, but in that sense, I think that hospitals have a huge growth potential. And these well-managed hospitals with excellent management will allow a large part of the national population to unlock the lockdown and be able to afford to go to them thanks to health insurance, both in the public and private sectors, and then to medical tourism.

Across the Middle East and much of Europe, a very standard procedure in the UK means a 300-day wait and I think a lot of that medical tourism can come to us if we can build a proper network and be able to market it. And the domestic market itself is huge. The saturation or penetration of healthcare is very low and because health insurance takes away the affordability factor, these companies will do very well.

I would say that hospitals are a big bet in the Indian sector and they will do very well. Most of them are very well run, well managed and capable of generating good returns on investment.