Let us work with the assumption that this year will be better on the health front. Is there merit in buying a travel company, a tourism company or a hotel company with the assumption that the pent-up demand would be unleashed in the next three to six to nine months?
Worldwide, the hotel industry gives the poorest reward to the investors. They do not give returns to investors for whatever reasons, asset intensity is high and the cost is very high. For small bursts of time, when they become mispriced as an asset, you can make money and there is such an opportunity today. There are two reasons for that –leisure travel as well as the postponed marriage season which is going to come around. India has a very large market driven by marriages and that is what is going to make big money for the hotel and allied industries in the next 12 months.
A huge amount of money is going to be made but the key is to get out after the next year’s results are out because by then you would have ridden this thing. Hotels are a wonderful play today. Almost zero new capacity is coming up in the market. If the marriage season kicks in, there is going to be a huge upside for the hotel stocks. It is an absolutely wonderful play but it is a one-year play. It is not a five-year play. It has nothing to do with your plans for your retirement fund or children’s education. You have to get in here knowing that you will exit the stock after 12 or 15 months.
The second point, a Sebi discussion paper for independent directors has come up. If that is adopted, the whole midcap space becomes really fantastic for investors to go in because it is going to change the way Indian companies are governed. Investors will find a lot more comfort with B and C categories companies. We have seen mishaps, not only in B and C category companies, but even in Vedanta, an A category company. How did the independent board give a loan to the parent company? Under the new guidelines, those very directors would be removed from the board and a clean set of independent directors would come on the board of a company like Vedanta.
If this paper gets adopted, big buying will happen in midcap stocks without any governance overhang. More than economic fundamentals, governance fundamentals and problems have plagued 90% of the Indian market.
What about metals, building stocks, ancillary plays?
Almost 30% of our holdings are in those segments and I have only one word – buy, buy and buy. These cycles last for years, maybe even a decade. There may be corrections. It is not going to be a one-way street. But these cycles come in 10 years and then they go after and then you get off the track for 10 years. It has just started at this point of time. If India says we want to grow at 7%, 8% or whatever the number is, the kind of requirement of materials is going to be humongous. All these metal companies, by and large, have addressed the debt problems. It is a clear case of buy. So metal companies — ferrous and non-ferrous, building product companies which are tiles, paints, are good. Most important, the big players in real estate have now come into India and they are under radar. Now it is a more organised market.
I think the first 10-15% of re-rating has happened, the balance 75% to 80% re-rating is still to come over a period of time. You got to be patient but that is the way to be; park your money and be there.
Lastly, an absolutely wonderful dividend is coming from these companies because the parents of some of the companies like Vedanta, Hindustan Zinc need the money. In steel companies, there are lots of free cash flows, lots of dividends; none of them are doing large capex and the money has started flowing in. In the first 12 months, they have seen the free cash flows becoming positive. It is a long cycle, be patient and the only answer is buy, do not sell these sectors.
What kind of names are you looking at within real estate and ancillary plays? Anything that you are quite bullish on in terms of the broader market?
India has become a land of stories. Who would have thought that I would buy a fashion wear company? Last month we started that. Metal is an old story. You wait for a correction. But the newest stories are coming out every day, the new listings are coming out. A QIP is happening in things like
where we hold shares at this point of time. The new gig economy is where you got to focus. Whether it is newer IPOs or the older companies in the new gig economy that is where you got to focus. Companies are pivoting. One needs to go whole hog here. India is underinvested in this sector by and large. We do not have too many IT companies. We do not have Netflix. We do not have Roku or anything of the kind.
So forget the old economy stocks. They will do okay. Cement yes. It is good for institutions, I am not a great buyer. Go for the new gig economy because you are going to make money there because these are entrepreneurs who are willing to raise capital, have no debt and do M&As. This year there will be a number of IPOs.
You better be in these companies. Allocate say 33% to the new gig economy companies. That is what I want to do and stick to that plan. A lot of them are unknown. It is very limited visibility for most of these companies, which is quite strange because they are the big value creators. The new gig economy stocks are where you got to focus. As for the metal story, we have got enough on our plate. We do not want to buy more at this point of time. Odd stories do keep coming or as I said who would have thought I would have bought a fashion wear company.
We also want to hear about the unheard of names of these new gig economy companies?
Unheard is a wrong word but most people don’t know about these stocks. We have been holding IndiaMart for a long time. This guy is not on the front pages, but he just raised this QIP at Rs 8,600 but is still largely ignored in the market. Then there is OnMobile, it went down to Rs 26, Rs 30 a share. The founder was a pioneer in the mobile phone products in the country. It is a good profitable company going a begging and now it has gone up to Rs 100 or so. There is Affle which has got strong AI capabilities in telephone and mobile phone industry and it has gone a begging. JustDial was the only profitable new gig company and its valuation was Rs 2,500 crore! It is absolutely ridiculous given what the assets were on the ground. It has gone up a little bit.
I am not saying buy any of these stocks but since you asked, all these stocks were there. But we focussed too much on the old economy. The economy is changing, the world is changing, let us give credence to the new economy, take your money and park it there. We believe one-third of the listed companies in India will be absolutely gone in the next five years. We can share the list with you, we have got a list made internally, 33% of the companies will be bankrupt and delisted in the next five years from BSE. It is about 800 companies.
Get out of them and get into the new companies, healthcare companies, IT companies. It is a new world out there. It is so exciting I cannot believe it. I do not want to be old. I want to restart my life now.
