Do you think a big move in Reliance could be initiated once the Aramco deal is done?
There are multiple drivers, there is a lot of Street talk on a demerger of its verticals with some kind of holding company structure and retail, e-commerce, Jio and the legacy petrochem and refinery business and exploration getting clubbed into three verticals. Any news on that would be value accretive because the faster growing parts will get much higher valuations and not as a refining cum petrochem major.
The valuations will start changing. The sum of the parts (SOTP) is taking care of it to some extent, but that could unlock the value. The other move is more of index management. When you are losing money elsewhere, the big fish start buying some of the major stocks in a quest to keep the index on an even keel including some of the foreign-based investors. So definitely there are some drivers going for Reliance.
I have a position and I have been a holder for a very long time and I have very high expectations from the stock. Right now, we might be in for a sideways market for a week or so before we get some catalyst which will come from the global markets.
The dollar has strengthened against the trend and as the dollar starts falling, we will see more flows into emerging markets and that could be one catalyst for a further up move in our markets. This could take a few days to a couple of weeks before we digest this growth and move ahead.
Is PSU banks a trade that you would bet on?
I have learnt that when the PSU stocks start working, then you should run for the exits. Seriously speaking, if these stocks were being valued on franchise, they would have very high valuations. Even now technology is not expensive and executing technology is not very difficult. So they are on par with the best in class. What matters is the management.
Again I would not say individual management. I used to be head of marketing for SBI Cards on secondment from GE Capital. I have seen SBI internally and presented to chairman SBI multiple times. Some of the finest bankers I have ever known, came from SBI. But overall, when you put in the entire management control to a promoter called the Government of India, value destruction happens.
We are coming off a 10-12-year cycle where nobody was willing to touch these stocks because there was a lack of value accretion. There is a natural upward move. There are a lot of positives going across segments for the PSU stocks but sooner or later, some bureaucratic decision comes in which spoils the party and that is the big hangover on these companies.
Otherwise look at
. If you had that kind of a company, anywhere else in the world with a private management, it could be rated so much higher. Take out the home loan unit of SBI or just their Yono app and float that as a different company and create value for the shareholders.
Unfortunately, look at the noise coming out of Tamil Nadu, Assam. Bengal will start soon. What is everybody promising? Do not pay your loans, we will get your MFI loans waived, we will get the farmer loans waived, we will get the weaker section loans waived. Everybody starts digging into the till and sooner or later that catches up to these great institutions with great management but not such a great promoter. The bureaucratic issues keep cropping up. I would not be very bullish on them.
