Reliance Share Price: Varun Daga on how to avoid value traps in this market

“A lot of people are talking about buying the IT names. They’re great companies, but we still haven’t touched them. We used to have them. Post-pandemic, we were very heavyweight in IT, but right now we don’t own a single IT stock; Not that we don’t look at it, but we don’t really believe in bottom fishing just because stocks are down 30-40%,” he says Varun DagaFounder & Fund Manager, Girik capital.



Many of the market experts we spoke to talked about a manufacturing renaissance in India and how to really play this theme in the future. How do you think investors should really look at this space?
Over the past two weeks we have seen, domestically and internationally, the kind of reaction that India is having now compared to just a year ago when everyone was talking about the US, FAANG stocks, bitcoin and crypto. Now everyone has come back to reality and see that this is a place in the world where there is growth and where money can be used.

So not only from a market perspective but even on the ground domestically we have seen many companies talking about capital spending in India and clearly there is a massive manufacturing boom. It will take time, but we are definitely looking up. We’ve been to Delhi and we really feel like it’s changed. The kind of infrastructure the city has, the kind of entrepreneurs we’ve met is just amazing. I think India is very well positioned for the next decade.

I’m quite surprised now and please correct me if I’m wrong, there are no auto stocks in your bullish list.
Of course we are in cars. A significant part of our portfolio consists of cars.

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I don’t see any cars in the top eight. So auto isn’t one of your top eight holdings, or am I missing it?
We own some

and Mahindra. Cars have been on our list for quite some time, have been on our screeners, and we’re playing it with these few guides.

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M&M is growing into the urban SUV space and is now getting aggressive into EVs. That will also be very competitive. A fortnight ago or less, Tiago launched a very affordable urban SUV that is an electric vehicle. Are you limiting your list to just M&M or do you plan on adding other car manufacturers to the list?
I won’t go into where we’re going because I don’t know. We are always open to everything, where there is growth, whether there is momentum, where there is something new. We really feel like this sector is coming back after a major downturn over the last 2-3 years and we are seeing new leadership emerging in various companies trying to launch new products. Management is changing in some of these companies. Also the car market hasn’t really grown for a long time, there was hardly 2-3% growth, but the SUV segment was very successful. What we really understood is that India wants to buy more expensive cars. So instead of buying the entry-level cars, we’re upgrading to better cars, and people who sell high-quality SUVs are going to benefit, and that’s the theme we’re trying to play.

What would you not buy at this market?
A lot of that. If you look at how our style is designed, we look at things that do well in a bad market, and that’s actually where cars and capital goods came into our sights. A lot of people are talking about buying the IT names. They’re great companies, but we still haven’t touched them. We used to have them. Post-pandemic, we were very heavyweight in IT, but right now we don’t own a single IT stock; not that we don’t look at it, but we don’t really believe in bottom fishing just because stocks are down 30-40%.

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We would rather play on strength than weakness. This is how our style is designed, where we would look at strengths rather than weaknesses. We do not buy anything that is weak for an extended period of time, especially when there are headwinds from weakening earnings. One place to avoid falling into a value trap is anywhere earnings visibility is non-existent or slowing down.

We always focus on where the next three to five years of revenue is clearly visible. Whenever we think things are not clear, we don’t get there. It’s not wise to go there hoping for a turnaround and then realize you’re falling into a value trap.

How would you view a company given what is happening with the windfall tax? Given that retail is big right now but not making a lot of money, what’s happening with your Jio investment? Is Reliance just there because it’s a heavyweight, or do you really like the business?
A good question because a lot of people ask us, is it just to make sure we don’t undercut the index? I think the answer is no. We really like this company. In fact, we really like the entire telecom sector. Both leaders are in our portfolio and have been for quite some time. We really feel like yes it might be a little bit choppy and a little bit volatile but I think the sector really has a tailwind like no other sector, right.

It’s pretty much a two and a half player market, but there are years of ARPU growth, we really think that’s coming, and it’s really playing out. So that’s a part. The other part is retail.

We really feel like this is a sector with many legs. It is being institutionalized for the first time in India. Some companies will really benefit from this trend. It is again a topic that has many legs.

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So those are the two parts of Reliance that we think are very, very good, and the other part is the cash cow, which has been a lot of talk about those windfall wins. But we really play retail and telecom. In both of these sectors we really feel that there is serious leadership and earnings acceleration as well. Generally, when leadership meets revenue acceleration, you make money.

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