Why do you think the markets succumbed to the selling pressure on Tuesday despite the news that all people above 18 are to be vaccinated?
That is good news for the markets as well as the economy. But the unfortunate reality is that the vaccines are not readily available. Vaccine companies and multiple pharma companies have been talking about the status of their preparedness and I think the earliest batch of vaccines which will come to the market would be from Sputnik which will be in June and not before that and that is also imported.
The domestic production lines will take little more time to get ready. As far as Pfizer and Moderna are concerned, I am not sure whether they will be very keen to bring vaccines to Indian markets at this stage. So we are left with Covaxin and Covishield which are going to ramp up their capacity. But the realistic way of looking at the entire issue is that we have to fend for ourselves for the rest of April and even May before incremental vaccine stocks from some of the global markets start coming into India in the form of Sputnik.
Meanwhile, we have to handle the Covid crisis and with the recurrent lockdowns, there are concerns about the economy and about lives and livelihoods. There is some amount of profit booking in the market because of all these reasons. Global markets may or may not support domestic markets but domestic factors are much bigger at this stage. The US markets were at all-time highs but Indian markets were going down because of the second wave of corona in India. So, domestic factors, particularly the Covid issue, is going to drive the market in the near future.
What is your outlook on financials, and the NBFC sector is particular? It seems NPA stress will be felt more acutely on some of the NBFCs vis-à-vis the pure play banks.
One has to see how the second wave and the related lockdown pans out. As of now, rural India has not been affected by the lockdowns. Now if rural and semi-urban India do not get affected by the lockdowns in a big way, then some of the NBFCs and microfinance companies which are focused on rural and semi-urban areas will not be significantly impacted.
Now the urban market has definitely got impacted by the lockdowns and curfews. There may be some stress as far as the asset quality is concerned for the NBFCs which are focussed on these markets. Coming back to the numbers and specific companies, NBFCs come across a very broad spectrum. There is no need to get too worried about housing finance companies. Globally, we have seen that the second wave peak comes very quickly and then it peters out. So I am not worried about housing finance.
As for gold loan companies, we need not worry at all. Yes there may be some delay in payments but we do not see any default happening there. Among microfinance companies, credit discipline is far better as far as the small joint liability group structure lending is concerned. We have seen that in spite of the worst problems, eventually the asset quality settles down to between 1% and 2% of problem assets. So I am not too worried. We are worried about two-wheeler loans, four- wheeler loans and other consumer durable loans. That is where we need to be careful. There is a huge difference between where you are lending for lifestyle versus livelihood. We believe that the livelihood lending will not get impacted because the credit discipline is very strong in Indian credit markets.
Where are you interested in the metal space? Would you stick with some of the leaders?
I like iron ore manufacturers and producers. Globally our view is that iron ore prices will not come below $100 per metric tonne and keeping that in mind, NMDC still looks pretty good. NMDC as a company has done a lot of interesting things. Mining has restarted in Karnataka. They have a process of exiting steel units, which will improve their working capital and cash flows. They have also diversified the customer base. So considering all this and considering the way the global iron ore market is positioned, we believe that this is going to do well over the next one, one-and-a-half years. One can look at that.
We also like steel. All the steel companies in India have moved up quite a bit. The way the steel industry is shaping up – -domestic demand, global prices — looks pretty interesting. We are bullish on
considering what is happening in the global market and considering that the Jamshedpur plant is one of the lowest cost producers in the world. Also European steel units are facing some challenges. Even if one has a one-year horizon, buying at current levels will be good.
