Why are housing finance stocks like Awaas Financials, HDFC Ltd even for that matter good old CanFin underperforming?
What we will see going forward generally in secured lending and particularly in mortgage secured lending is that there will be a lot more competition from banks. Banks have started seeing this as a very lucrative risk reward opportunity where you have a secured asset and the yields are quite reasonable in this segment. So many of these HFCs will face heat from banks and that competition is yet to play out. Of course, we know that with the exception of maybe one or two HFCs, most HFCs have higher cost of borrowing as compared to the banks and that means banks will be more competitive in actually lending to that segment and that really is making the Street a little iffy on HFCs.
In any case, the Street believes that if we want to play the home lending or mortgage space, then we may as well play it through the banks. There are some banks where a sizable portion of their retail lending is to the mortgage space. That is one reason where the Street is a little cautious on HFCs and moving away from many of the HFCs. Other than that, residential real estate in particular is going to surprise again. I am of the belief that it is going to surprise everyone on the upside. Both on volumes as also on price between now and the next 12-18 months this space is really going to be in favour.
What are views as far as the pharmaceutical stocks go?
Many of the Indian MNCs exporting to the US have come out with cautious commentaries and said that there is pricing pressure as regards their sales to the US. So, discretion has to be shown in what you invest in there. Even in the US selling companies, there are opportunities and these opportunities are with companies where they have the facilities, have recently received approvals to sell their products and so are filling those facilities today. For them, the pricing impact is not so relevant. A few companies fall in that bracket and they will benefit from the US opportunity between now and the next say 12 odd months.
In addition, the API opportunity is a multi-year trend and 20 years ago, India used to be self-sufficient in APIs. Slowly we lost the entire market to China. Now China is as much as 74-75% of the global API supply chain and India is only about 4% odd. If that supply chain shifts only 1% away from China and towards India, the Indian market goes up 25% and that is huge and for China there is a minor shift but the market still remains dominant over there.
So the API opportunity is a multi-year trend. There will be companies which will benefit from that. In general, we believe there will always be cooling off periods in between but long term, pharma is a very attractive space to be in.
There are horrific developments in Afghanistan. Is this an opportunity to buy defence stocks?
The only way to judge this is how has this played out in history and whether it was the Kargil conflict or the Second World War and even other wars like the Middle East War that happened typically. If there is unrest, then defence stocks tend to benefit. In that context, if there is heated activity on the western border of India or if there is threat of a conflict or anything of that sort, then clearly that will benefit many of these defence stocks.
So to that extent, definitely one should have them on the radar but this is quite a binary because if you do enter when expectations are already heightened and things do not pan out as you anticipate, then you tend to lose money. So one has to be cautious about how to approach them. In general, I would say that there will be interest in that space.
We are looking at about one crore Indians directly, indirectly benefitting because of this wave of IT outsourcing and inflationary uptick which has happened in the wage. The rural end may not see a change, the non luxury items soap and toothpaste will not see a big change but in semi luxury, cars, real estate an uptick can be expected. Do you agree?
I could not agree with you more and if I may just add; the ancillary benefit of IT is going to be in many sectors. When I say IT, I mean the internet ecosystem in general. One is of course the well understood, well spoken Cloud migration which is underway and there are a lot of IT companies which are benefitting because of that. But there is also the Amazons and Flipkarts, who need logistics to transport their material and look at paper prices which have been going through the roof and that is on account of people ordering online and packaging material.
Also A4 size sheets which are printed as bills, go with the goods that are transported to homes and despite schools, colleges being shut, we have a situation where paper prices have done well and also volumes are doing well. So there are ancillary beneficiaries of this entire trend. This is a multiyear trend. Some of it has been discovered but there are opportunities that one can
advantage of for a long period of time.
If one listens to all the recent result calls, the five-year demand commentary for the sector that many of these companies are giving shows that while 2010 to 2020 was a good cycle, this just dwarfs it. The tailwinds on demand in the next five years is going to be quite significant.
