Why are commodities not correcting? Commodity prices are not coming down and commodities ultimately are a function of demand and supply?
This time there is another angle to it. Now the issue is basically on the supply side — whether it is iron ore supply which got disrupted sometime back or whether it is the production of steel across the world which is getting disrupted at several places because of corona. Not to say, money which is fairly flush across the world, finds its place in every commodity or every asset class is flowing in here as well. That is why we are seeing this kind of high prices.
Over a period of time it is going to come off a bit, but it may not go back to the earlier levels given the huge demand, especially in the case of steel where there is a lot of closures in China because of pollution issues. Overall production in the world is going down because of Covid and that is why you are seeing higher prices. As capacities get added in the next three, four, five years, the pricing will become more normalised.
Would you buy the current downturn in Maruti or because chip shortage is having an impact on production and that is something which is beyond their control. But this chip shortage is not going to be permanent and car production will pick up. Do you think this is a good time to be a buyer in a sector which has underperformed massively?
I have been underweight on autos and my problem is not about chip shortage. It is more about demand and my thought remains to be basically if there is a third wave who knows it is not going to happen or when it is going to happen or the liquidity across the world gets squeezed up.
So there can be only two scenarios. If there is o third wave across the world, then the world over, the central banks have to normalise the economies which means they have to squeeze out the extra liquidity, they have to consider inflation going up and that is why they have to increase interest rates. It is not very favourable across the world basically for various asset classes and as the asset classes start going down, then we will see the impact on demand. My issue is about demand. I do not see that demand being very strong in this current festival season. Also, Maruti has its own problem which is that while the SUV market is the fastest growing market in the country, Maruti does not have a pipeline there. These are the two reasons I would want to avoid Maruti. The only thing going for it is the TINA (There is No Alternative) factor in the car market. That is why most people hold it. I think it is fairly priced at 20 time plus. So I prefer two- wheelers – both Bajaj Auto and Hero.
