'Invest in Zomato if okay with 20% volatility' | Economic Times

“The one single thing that I look at every morning or the thing that drives my thought process is where the US bond yields are heading because that will tell me where the liquidity is flowing and that is really where the markets are ultimately going to go,” says Atul Suri, Founder & CEO, Marathon Trend PMS. A new space is getting created in the market. There is no historical reference for it but this is the go-to space. Zomato, IndiaMART, Affle belong to this space. Though there is no historical data, it has rich valuations, lots of enthusiasm and no reference of charts.I think that this is going to be a place of great opportunity and great challenges. The challenges are we do not have high levels of profitability or great buffers or much of a track record. So we do not know when markets correct or when these businesses get challenged or how they are going to pan out. If you are in this space, you must have the stomach for that kind of volatility because these stocks will correct 20-30% at a time. If the markets go down 5%, these stocks will correct 20%. So you need to allocate sensibly in these stocks so that you allocate enough and enjoy the upside and at the same time, you can stomach the volatility. In Marathon, we have consciously focussed on profitability even in this space because there are some companies out there which still continue to deliver or which have underlying balance sheets and P&Ls which may not justify these rich valuations, but gives us a sense that their existence or their survival is not going to be very challenged. I like the new-age businesses. I think they are going to be big wealth creators and we can see that in the US. However, it is very important that they are backed up with numbers. That is where we deviate to those companies where there is actual delivery of numbers. They may not be cheap however. Ultimately that is how markets will reward and help us withstand the volatility. What could be the next trigger for the markets to go higher? Since you are looking at quality and at good financial performers, these stocks will have expensive valuations. So clearly valuations are not a concern.The big challenge is the whole global environment. We know by now that this is a liquidity infused market. There has been a lot of money pushed thanks to the Fed and the various other government bodies across the world. As long as that keeps going, the machine will keep moving. The risk to global markets is how things pan out as and when there is tightening or tapering. So that will be a risk and as and when that happens or if bond yields go up, that is where the whole question of valuations, growth versus value as investment theme will play out. We got a precursor to that about three to four months ago when interest rates in the US bond yields went to 1.74%. We could see that portfolios were moving away from growth towards value and again when bond yields started coming down to around 1.2% or so, the world moved to growth. So I think it is more directional and that will happen globally. The most important variable, most important market indicator is ultimately the US bond yields. That gives us direction as to what the US investors, markets, traders think is the direction of inflation and interest rates. It is liquidity that has doubled the equity and commodities markets. If one can get the pulse on that, one can actually pick a turning point. At the moment there are no red signals from me. If the US 10-year bond yields go beyond 1.74% and more so above 2%, that is when I would really be worried about the larger market play. Otherwise, there will be utterances over whether the inflation is transitory or structural and things like that. The one single thing that I look at every morning or the thing that drives my thought process is where the US bond yields are heading because that will tell me where the liquidity is flowing and that is really where the markets are ultimately going to go.