Some of the reopened trades are quite active in the markets despite the fact that we have cooled off quite significantly. Indian Hotels, PVR were holding out in Tuesday’s trading session. Do you think that the rally is based on false hope or is there an incremental reason to cheer given that this vaccination drive is very much under way?
In terms of our estimates, at least Maharashtra the peak should happen very soon and the flattening should happen in the next two to three weeks. We should see the numbers coming off quite fast. Now as far as the cinemas and the hotels go, I do not think you can see footfalls for the next three months till there are significant vaccinations. Right now, it is more a bounce from the kind of hits these stocks took over the last two weeks. But I would be wary. We have seen this story repeatedly and the difference from last year is that we know the script. We have seen what happens over a year. It takes a long time for footfalls to start coming back.
Secondly, states are reacting differently. Some states talk about 30% occupancy, some talk about 50%, some are very quick to ban everything. So we do not know how soon the reopening will happen. If one wants to play reopening, it is better to look at economic revival stocks rather than the hotels, restaurants and the cinemas. Look at the cyclical stories, look at the economic recovery stories. I would stay away from aviation and hotel stocks.
Aviation on a consolidated basis will make a loss of about Rs 21,000 crore in FY 2021. They are still about 62% down in terms of 2019 passenger numbers and international travel is hardly there. More and more countries are banning flights from India and it will take two to three months before the vaccine visibility starts off and over the next six to nine months, we will get 30% to 40% of our population vaccinated. That is when these reopening trades will start showing up. Right now, it is too early.
On Tuesday, we saw money moving out of blue chip HDFC twins and into some of the PSU names like SBI. Why is the market turning away from to begin with?
To some extent, there is a rerating of PSUs and it is coming after 12 years of underperformance. There are a lot of triggers for an SBI but the selling in the leading quality names is probably because of the FIIs selling. I would not say that somebody would be selling these private sector lenders and getting into public sector banks and impacting the price to that extent. The FIIs really loaded up on the banking sector in October-November and probably some of that profit booking is happening now. At a 7-7.5 times price to book, the private sector lenders are not cheap but they are priced like that because these are high quality stocks that deliver across market cycles. So I would not read too much into it. Any Indian portfolio will continue to own quality like this. If it was some of the lesser banks, then one could have seen people moving from private sector banks to public sector banks but not the top two-three private lenders. Those remain evergreen in most portfolios.
What about the overall cement space? How are you playing this sector?
Last quarter and this quarter, cement had a big tailwind thanks to the petcoke prices and hence input costs going down. The expectation was for mild volume recovery. Rural demand has stayed quite strong. So rural as well as the government infrastructure push were the two key drivers for cement. We saw very good results for ACC; the expectation is Ambuja will also come out with good results. This is a carry forward from the last quarter which was a blockbuster quarter for cement majors.
Cement stays a buy sectorally. In terms of stocks I would say buy the market leaders and a few select midcaps can also be looked at. Will the demand get impacted? I do not think so. The government has kept most of the construction activities out of the ambit of the lockdown and the curfews. We expect demand to continue. Some portion of the private demand will go down, but we expect infrastructure, construction and rural demand to continue. Cement would stay a buy for us.
