BEML privatisation process is perhaps entering the next lap. As an investor, how comfortable are you with PSUs which are due for privatisation?
BEML per se has a very good prospect and a very good potential without any doubt and more so because of the accentuated focus of the government on defence and that too for local companies. I think that is a very good combination. All in all, that sets the tone for being upbeat on BEML and that disinvestment that we are talking about and the demerger of Reliance and all that will always be taken very positively by the market. That is what we are seeing at the moment.
The core business itself will derive the ROEs and ROCEs for the company on an overall basis. I would say that BEML certainly deserves A look. The question is whether this disinvestment will be done in a very lame way or whether there will be some strategic partner. All that will be very keenly watched. In the case of BEML, we are not too sure but I think there will be a strategic partner who will bring value on the table. Based on all this, some of the disinvestment candidates will certainly attract and will merit a good look for investment. On a longer term basis, one should invest in some of these stocks.
What are you working with when it comes to Bajaj Finance and Bajaj Finserv’s earnings?
The fourth quarter results of last year has come out, and we all know that the first quarter has been impacted by the second wave and also because of the lockdown that followed because of that. It is not a question of whether the first quarter is going to be all that great, how much is going to be the AUM growth in the subsequent three quarters, how much is going to be the bounce back and whether it is just a pent-up demand which could possibility taper off.
Answers to all these questions will possibly be very keenly watched and may be addressed too. Our own thinking is that some of these stocks like Bajaj Finance, Finserv should really be considered for investment though they are trading at very exorbitant valuations. Ideally, one should buy at the correct levels but one should look for an opportunity to accumulate these stocks as and when they correct.
Looking at the broader market perspective. I do not think anything is going to run away in a hurry. That being the background, if companies like Bajaj Finance and Finserv offer a scope for correction, one should buy without any doubt. But at the moment, I would prefer to wait and watch and it would be a candidate for accumulation at a slightly lower level.
Where do you think there is that valuation comfort in the market right now?Where do you feel investors can still get in for the longer haul?
If you are talking about longer haul without any doubt I think, the stock market will certainly give a very good return and more so if you do it on a SIP basis. So without any doubt the prices are much ahead of the fundamentals, there is a lot of expectation in the markets about how the economy is going to recover. The optimism runs pretty high on that but the economy may not grow in such a linear way.
For the next three to four months, we might see a steep rise on all the parameters. How it behaves after that is something that is going to be watched and it will not be very linear.
There will be good volatility in the growth because a large part of the economy will get impacted and selectively the listed companies will play out pretty well because being larger players, they can put their acts together better. So if you ask where the value is, I think on an overall basis, Larsen & Toubro still looks pretty good and interesting.
Some of the cement stocks look pretty compelling at the moment. And I would still play some of the steel stocks not because they will continue to report phenomenal performance which is a given even if you were to take some parameters like debt to EBITDA or even ROE and the free cash that they generate. All those things will give a huge green tick for these companies.
But more importantly, I still feel that the steel prices will continue to go northwards as the world also gets into a recovery shape. The demand for steel will continue and more importantly, the prices will continue to go northwards. Both ferrous and nonferrous metals offer a very good scope even from current levels. Also, without any doubt, pharmaceuticals continue to be one of the preferred sectors.
What is your view on , is there any transformational announcement that you are anticipating when the numbers come next week?
We had this AGM where a large part of whatever had to be announced, has been spelt out very clearly. Going forward, maybe the management will make a quarterly call. People will still like to know what is happening on the demerger of the petroleum business and whether that deal is happening or what is the progress on that particular deal.
For the rest of the things, as far as Jio and the retail business are concerned, that story is being played out and to what extent these two stories can drive the performance remains to be seen. And I think that will continue to be not so easy and it will continue to be challenging for them. So I would say that I do not expect anything great in Reliance but the way it has underperformed now for the last 4-5 months or maybe more, there could be some spurt here and there, but I doubts whether they will be on a sustainable basis. One should wait and watch for Reliance and I do not see any immediate trigger in Reliance that will be picked up.
What about the auto as well as auto ancillary space?
The prices are significantly ahead of the fundamentals and they are pricing in a lot of optimism at the current level. In that sense, upside becomes capped for the next couple of months or so. I do not see any reason why some of these can really go and what may happen is on a relative basis because some of the stocks have moved up the others may look pretty relatively cheap. On that basis, some catching up may happen but otherwise in the entire auto ancillary pack I would prefer to wait and watch and not be in a hurry to commit to this particular sector.
