Great uncertainty was raised with the Supreme Court’s verdict on AGR fees and there was great relief for Bharti as a ten-year period has been given to pay AGR fees.
Yes, definitely and they have already paid a big chunk and secondly they have created a war chest by raising capital. We believe there will be subsequent increases in ARPUs. There will be a price change and that will help the bottom line. So a good result for Bharti and they have been rewarded for the way they acted from the beginning to raise capital and raise more funds.
Now, once your foreign ownership is liquidated, you could also see more inflows into the stock due to the 100% allocation for FDI. Once it’s approved, you could see more money coming in in terms of interested foreign investors. It is a consumer work from India. It is becoming more of a duopoly now between Jio and Airtel and the pricing power will return to the industry. The industry appears to be on the cusp of a sea change in terms of improved results and margins.
What catches your attention in the pharmaceutical basket?
The pharmaceutical industry outperformed the past six months and there was some concern that much of the growth had already been included in valuations. The second thing was that, with the expectation of a solid recovery six months to a year later, the cyclicals were again in favor. We saw increases in automobiles and metals.
We saw cement increase and after some corrections we are seeing a rebound in the pharmaceutical industry again. But I would keep it very diversified, the pharmaceutical industry has already worked. There’s still good momentum for growth in pharmaceutical stocks, but it’s also time to start picking some cyclicals, especially metals, given the kind of numbers coming from China, which is the biggest consumer of metal packaging. You will see the performance of the metals. Overall, given the amount of liquidity that has been injected into the world economy, our fundamental thesis is a strong recovery in the world economy over the next year, so cyclicals will tend to do well. So we would be very interested in base metals, materials, and cement stocks.
We are seeing a change that is finally coming to the car. Consider the car from two years. This is a good entry point to the Indian car package. Two-wheelers will recover faster than passenger cars. Commercial vehicles will be delayed due to excess capacity and due to various other financing issues that exist, but eventually commercial vehicles will catch up. There is a more coincident type of volume that we will see in commercial vehicles, but the leading indicators in two-wheelers and passenger cars are quite good and show that we could have a solid recovery in the next six months to a year.
Would you say you feel a little more comfortable buying banks, at least the top-tier names?
Yes definitely and the main thing will be that the central bank has put restructuring on the table. Therefore, you will see that many of the problem accounts are restructured. So the addition of Rs 10 lakh crore to the NPAs is not happening and this will give both banks and those clients time to kick-start economic recovery and to be able to repay their loans. The restructuring will help the banks a lot.
For NBFCs, there are problems, especially in developer loans. We anticipate quite a few problems there and the government has come in with a fund that is helping stagnant projects. It will be necessary to take this type of initiative to rescue stagnant projects and the loans from developers to finance them. Banks don’t have as much exposure to that segment per se. There is exposure in gems, jewelry, hotels, restaurants, all of them will see some problems.
When it comes to SME loans, banks have been quick to shift many of the loans to the government’s 3 million rupees. Almost 180,000 crore rupees have moved into that. I hope that high-quality benches really do better. We have to be careful when choosing stocks. I’d stick with the leaders, the top two-three on the private side. In public sector banks, there is a history of change, but I still prefer private sector banks. The chances of getting good returns are much better there than the public sector banks for now.
What would be your top mid-cap IT bets?
I wouldn’t want to give a particular action, but there are at least four or five names in IT midcap that look very interesting. In general, if you see the big difference this time around one, the business models have re-adjusted to the digitization part to cloud computing. There’s practically a wave of outsourcing on the way from our IT companies, and mid-cap IT companies have a good niche offering. Most of these players will be able to accept these orders even with a lower margin than large cap IT.
But for me, first the mid-cap technology and then the large-cap guys. There are enough opportunities even within the large cap IT players in India. The rupee dollar is a concern and the RBI that allowed the rupee to appreciate has taken the market by surprise. There will be a small impact on earnings due to the appreciation of the rupee over the last month. There has been an increase of almost 2% in the rupee. That’s negative for the industry, but overall, global IT spending is declining 4% this year, but we’re talking about a few trillion dollars and our market shares are not that big in the overall scheme of business. stuff. So there is a huge market and a very high margin, low cost players with very good services and business models are being reorganized. Here are some of the drivers that work for mid-cap IT. I’d say it’s definitely worth a look.
What is your opinion on L&T? What’s the long-term outlook there?
He is the biggest player, the best professionally managed infrastructure player in India. There were some downsides; one was obviously the leverage and stagnation of projects, both in the Middle East and in the Hyderabad Metro, which caused some concerns. The sale of Schneider generates more liquidity. It has been in the works for a long time. It has taken almost 24 months to come to fruition, but overall it brings about Rs 10 billion to the cash books. It is very positive in that sense.
L&T will be a good representative in the infrastructure push, which is inevitable. It will start with the government and then the private sector will take over perhaps four more quarters in the future. We expect the push from the government in the next six months.
Overall it is a very well run company with very professional management and the scale is there, from defense to EPC and various other segments that they have. We also expect some disinvestment in the financial part. Therefore, a move back to the core could be there to consolidate. That would also be positive and worth looking into. I am not giving a buy or a sale but it is definitely a market leader in this segment.
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