Many analysts are saying that there is optimism ahead when it comes to autos despite the sector getting impacted by the second Covid wave. What is your view on auto?
We were anticipating a pickup in recovery for autos because it is one sector which is anyway getting impacted because of Covid and even before that, the sector had seen the impact of rising costs due to the regulatory changes. I would say that the sector has gone through a deeper down cycle before Covid, Post Covid and the Second Wave. In the immediate term, the outlook is getting a bit cloudy. But I would imagine that the sector is looking good as far as the cyclical recovery is concerned.
Once more people start coming out, they are going to spend on high ticket discretionary categories as well. The dynamics of the sector are well placed in terms of the cycle lows and we are building in a gradual recovery in the sector. Currently, the passenger vehicle business and the CV business are looking cyclically far better than the two-wheeler business but one should also keep in mind that once the valuations in the two-wheelers becomes attractive, one can again look at this category. I would imagine it will be a gradual recovery process for the auto industry.
If there was one sector you had to pick as the prospective outperformer in a year’s time frame or end of year or one year from now, what would it be?
It is really difficult to predict one year out because today we are in a highly uncertain environment. I would imagine that the outlook should improve in banking and the financial sector. Credit quality should improve, the credit cost should normalise and that is one sector where the profit pools will drive and there is merit in looking at the sector, gradually increasing the exposure.
Can you explain in simple terms how one can get rich?
It is a very simple formula. Getting rich is a very gradual process and one needs to have patience. I would really advise young investors to keep a 20-25 years time frame. Start investing in any good fund. Start with SIPs and just open the statement after 10 years and do not look at the statement for the next one, two, three or four years. That is the sure shot way of getting rich.
Have you looked at the Fed’s recent moves? Also how are we tackling inflation back home?
Yes. There is a lot of fear around the fact that inflation is being seen globally across commodities. Interest rates have started looking northwards and that is the fear across various economies. Thanks to this fear, capital is moving back into the US markets. This is unavoidable. It is just a matter of time. The debate is not whether the interest rates are not going to work; the debate is when it is going to work? One should be prepared for it but one should also look for factors which are driving those changes in the economy and the factors are more fundamental in nature.
Most economies now are spending a lot or focusing a lot more on the recovery prospects of their economies and that is a good thing to happen because fundamentally because of the global spends, the corporates are generally going to do well. Some bit of inflation and some bit of interest rates in the initial phase is always healthy because it leads to optimism.
Eventually as it starts heating up in the later phase, one should really get worried about it but for now, if the factors which are going to drive the growth in the economy are being put in place, I would say that is job well done that will take care of the growth. It will also mean there will be some inflation and interest rates will be high.
We should also recognise that a significant part of the inflation was due to the supply chain impact which most of the commodities or most of the products today are facing because of Covid. As the supply chain bottleneck starts easing out, some of the inflation should also come under check. I would say, it is not looking like a very bad impact. It is just that the economic revival should also take place along with some of these changes which are happening.
