NEW DELHI: Warren Buffett‘s Berkshire Hathaway now sits on a cash pile of $145 billion. Its net stock sales in the March quarter stood at $3.9 billion, the second-highest in the last five years. The company also went slow on Berkshire share buyback. Buffett said he wants to deploy $70-80 of the cash, but cited unsupportive valuations.
Should domestic investors take these cues as a signal to sell stocks?
No said analysts, who felt it is not the time to sell stocks in the domestic market. They said domestic investors must keep utilising any correction to buy stocks with a high margin of safety. “Buffett too wants to deploy $70-80 billion worth cash; doesn’t he,” they asked.
The US seems to have seen the worst of Covid-19, while India is yet to see the peak of the second wave.
This is all visible in valuations, as US stocks now hover around record high levels and the economy, too, is faring well, resurrected by what Buffett said was “extraordinarily effective way by monetary stimulus from the Federal Reserve and fiscal stimulus from the US Congress.”
In contrast, domestic indices are 8-10 per cent off their February highs, as the number of states imposing lockdowns rises with record daily Covid cases.
Binod Kumar Modi, Head of Strategy at Reliance Securities, said Nifty50 trades at 23 times one-year forward earnings, which is at a 25 per cent premium to its long-term average.
In terms of market cap-to-GDP — called the Buffett Indicator — India trades above 100 per cent, thanks to the contraction in GDP in FY21, he said.
“However, the spread between the yield on government securities and Nifty’s earnings yield is still in the range of 110 basis, which is lower than the historical average of 185 bps. This continues to offer comfort on domestic equity,” Modi said.
Analysts said the recovery in the developed economies is also a good sign for India.
Rahul Chadha, CIO of Mirae Asset Global Investments, said the domestic market is going to deliberate how serious the Covid wave is and when can it possibly see the peak.
“If we see India, Korea and Taiwan, they have seen big earnings in the past six months. The markets may go on to catch that momentum. There is a lack of clarity on what has happened in April and May, and we are seeing earnings downgrades. Volume numbers for most auto companies have also been impacted. We will get a better hang of it, as we move towards July .Overall, as people realise that global growth is coming back strongly, markets will be willing to look through this temporary increase in fiscal deficits,” Chadha said.
“If the government does the right thing from a medium to long-term perspective, the market would be willing to overlook the short-term negative of higher fiscal spends,” he told ETNOW.
Meanwhile, analysts said first-time investors should pay heed to Buffett’s advice of not acting as gamblers. Investing, Buffett said at Berkshire AGM, “It’s not as easy as it sounds”.
“It creates its own reality for a while, but nobody tells you when the clock strikes 12,” Buffett said, adding that an average investor should invest in index funds or hold the market through exchange-traded funds instead of betting on the trending sector or stock.
Analysts said new investors should stay selective in stock picking and should not try to time the market.
“Even Buffett admitted selling of Apple shares last year was a mistake. He conceded that the recovery in US stocks made his decision last year to exit stakes in the four major US airlines — namely American, Delta, Southwest and United — appear ill-timed. It is a takeaway for domestic investors that nobody can time the exit and entry in the market,” said Gaurav Sud, Managing Partner at Kanav Capital Advisors.
Buffett said before investors become too sure of themselves, it is important to realise that “there is a lot more to picking stocks than to work out which is going to be the most wonderful industry in the future”.
Modi of Reliance Securities said Buffett’s indications on deploying $70-80 billion through acquisitions suggest there are potential M&A opportunities ahead.
Can India be a potential geography?
The US-based Berkshire Hathaway had in 2018 made an investment in Paytm’s parent firm One97 Communications.
“Notably, many a time Buffett has shown his apprehensions about red tape and unfriendly laws for foreign investments. India has undergone tremendous policy changes in the last couple of years to attract foreign investment and the number of M&A opportunities available in the country, especially in various emerging sectors, the Indian market cannot be ignored,” he said.