What do you believe could be the biggest spanner in the works or the biggest challenge to further growth?
We are expecting global markets to be on the sidelines waiting for the Fed meeting and the Fed press conference on Wednesday afternoon, US time and then the markets will continue their journey. There is no expectation of any taper talk right now, especially after last week’s US inflation numbers, the core PCE numbers. Despite the numbers being at 12-year highs, we saw the markets making lifetime highs again and that showed both the bond market and the US market and the dollar level projecting that this inflation number right now is a function of a base impact from last year, supply chain disruptions and other disruptions because of Covid, including the commodity price rise.
So it is going to be transient maybe for a quarter more. But it is not going to be long drawn out which is good news for the markets since such a big event is coming up on Wednesday. Markets will pay respect to that event and will continue their rally post that. Global liquidity continues, the Fed’s accommodative stance continues. For us, what will be critical are the givens. The givens are that the second wave economic impact has not been as high as last year’s. The GDP impact will be about 3% overall for the full year, given we had nearly three months of lockdowns.
The third big thing for us would be if vaccinations get ramped up by August as projected. The markets are factoring in 60-70 lakhs a day vaccinations by August. If there is a stimulus package from the government, especially for the affected sectors which have really borne the brunt of Covid first and second waves as well as a safety net payment in the rural areas to ensure that rural demand comes back in time for the festive season. Those are the key catalysts we are looking ahead to.
Would you comment on the ET story on NSDL freezing accounts of three FPIs which held shares of various group companies?
The only unfortunate part is that if NSDL took this action on May 31, why wasn’t it brought to the notice of the general investors? All these companies being listed, should have written to the exchanges that some of our big investors have got their accounts locked in. Were they not aware of that? What was the regulatory doing? Everything comes back to the protection of the retail investor who gets to know the last.
Institutionally there is not much impact as hardly any institution owns any stocks except for the index and the MSCI inclusions. But otherwise, hardly any mutual fund or insurance company would really own these stocks. So the institutions have not lost out. It is the retail investors who would have got attracted by these returns over the last one year, who would be nursing losses today.
Again, I would say it is worth looking at that if such a big decision was taken, how did it not percolate down? Overall, there is little systemic risk as the Indian investors’ contribution into the shares is very little so it is not very systemic and as we have seen today itself the move has got digested largely. The bigger implication is will this lead to a probe? Will anything get done on investigating this through? I do not know. The management will issue clarification. So let us wait and watch for that. Overall, not too much of a systemic impact, the markets remain strong, it is more of a consolidation that is happening. Given the global liquidity, the recovery trade and the rotation trade, the markets will continue to progress.
What are your views on the hospitality industry and the kind of damage and impact that they have witnessed on account of the second wave?
Given the quarantines, the hospitality industry had some business at least and the delivery business was continuing, but it was much smaller. We are looking forward to first dining starting and then we will see a pick up. Broadly, that is still about four to five months away. Globally the picture is very different. Globally, we are seeing huge bookings both for the summers and over the weekend, Lufthansa put out a communiqué that there is such a rush of German tourist wanting to go to Spain and Portugal for the summer breaks, that they have started using wide-bodied aircraft for two hour flights.
So Europe has started opening up. The US is seeing huge bookings for vacations and hotels are picking up. We are behind the curve, Even in China, the occupancy is pretty good and that happened three-four months back when the Chinese hotels saw a good recovery. We will probably start another three months from now and it will depend on how fast we start vaccinating. If we hit 70 lakh to a crore vaccination per day, then we will see a lot more confidence returning.
Right now, the situation is not too good but the organised players have managed to weather this and they will come out firing strong. So, it is a good time to look at hospitality names. Delhi has announced that dining is opening up with 50% capacity. People are really into revenge consumption all over the world. The moment these are opened up, people will start consuming and travelling.
ET Now: How are you mapping the growth of PSU banks from here?
Ajay Bagga: There are two drivers for PSU banks. One is of course the three to four large banks with a turnaround story coming through with NPAs having bottomed out. The other story is the smaller ones which will be privatised. There is a lot of interest there as well positions being built and both these are opportunities. The risk is that if retail NPAs pick up as anticipated, there could be some problems on the PSU banks front. Having said that, there are still enough drivers and the price to book is very attractive at one time for an
with all the drivers that are there or something like at 0.8 times. These are very attractive levels and if at the end, the corporate and retail NPAs do not take off with the economic recovery, these will be the natural beneficiaries.
How much of the run up has already got factored in by the market is up in the air. A lot of it has got factored and the markets are quite optimistic about them. It has been a great run. But I would still go with private sector players. There one will get lower credit cost as well as higher growth. So it might be better to stick with the quality names on the private sector side.
