The Sensex has gone way past 59,000. What next?.
We are seeing a classic text book type bull market. It just kind of flattens or has a sideways correction for a few days or weeks and then some small trigger may come and take the stock prices higher. Today’s trigger, of course, has been the way telecom stocks have moved up and the kind of relief which the government has granted and not just benefitting telecom stocks but a whole host of banks as well which have got exposure to the telecom sector.
Hopes of positive news in terms of bad bank for the banking sector also kept banks in the limelight. Banks have been a big underperformer over the past few months or so because of Covid and because of a rather disappointing June quarter earnings. Some positive news flow is taking these stocks higher but I reiterate it is a classic bull market and every correction has to be bought into. This bull market is supported by rising earnings of corporates and very strong liquidity.
We were spellbound by the way ITC moved on Thursday, What is happening?
It is about time. A lot of bets were placed on ITC to move up. It has been a big laggard and finally investors realised that maybe this low PE stock which has not been performing, needs to be given a chance. It is a bull market which raises all boats and ITC also is seeing some liquidity come into the stock.
In terms of valuation, it was a screaming buy, in terms of dividend yield also, there has been a lot of comfort and hopefully some corporate action is what the Street is expecting, in terms of splitting of the company into its various businesses as an unlocking measure. But let us just wait and watch. When there is a breakout and if it gets sustained and stocks move by another 4-5% or so, it could be the beginning of a very strong up move which may take the stock even higher by 40-50% from the flat trajectory which was there until a week or so ago.
Let’s talk about PSUs. Do you think once Air India gets sold, we will finally see a scurry for the entire PSU pack which already has begun its move — be it , Oil India or NTPC?
It does appear that the government is going into an overdrive in terms of reforms and one aspect which has been lagging is privatisation and disinvestment. Now, with the cOVID related issues well behind, the government will look at privatisation with renewed vigour. Normalcy has come through and it is the right time to look at IPOs like LIC or divestment of privatisation like Air India or
for that matter. Somehow, excitement will yet be generated in PSU stocks.
If any of these events take place successfully, especially privatisation, there will be a chorus and a call for more and more companies to be privatised and then that will become a trend. It is no longer a political issue and it is a great value unlocking opportunity. All the stakeholders are pleased with that particular move and there is a new kind of interest from a lot of institutional investors, retail investors getting into PSU stocks because there is no denying the fact that PSUs are trading at extremely attractive valuations compared to the rest of the market.
They are available at good price to earnings multiples and good dividend yields. So, there is basically a valuation comfort in these stocks. What was missing is the trigger and the trigger in the form of privatisation can be very strong and it will energise and electrify the entire PSU pack. It does not matter if that particular PSU is strategic in nature and will never be privatised but it generally creates a feel good sentiment within the PSU pack. I would say that to an extent PSUs are under owned and they may scurry to buy into these counters if there is a belief that privatisation is here to stay and it will pick up more over the next two-three years, or so.
There has been a lot of debate in the market about the telecom relief package and what it really means for Vodafone-Idea. Would you say that this is just a near-term relief that one is seeing on Idea?
It is a near term relief. It just buys them some more time. It gives them a window of even a couple of years to get their house in order, raise fresh money and try and prevent the loss of subscribers through advertising or through better network investment or whatever the strategies they have.
The interim period is very important for Vodafone-Idea because they have been in the market to raise money and we are in a situation where there is abundant liquidity. There are many positive aspects of Vodafone-Idea which strategic investors or even private equity may like to look at and if they are able to survive this particular storm, then even if it is a small player, maybe a number three player, it can certainly get profitable by right sizing.
I am sure the management is thinking in terms of rationalising the regions offering its telecom services to focusing on ARPUs and premium customers. There are lots of strategies which telecom companies can adopt and a lot of opportunities are also opening up in the digital space for them. I am sure that the company is evaluating all of these options and at some point of time, in the next 6 to 12 months, we could look at a good fund raising. That certainly will solve a lot of issues at Vodafone-Idea. It will never be a major challenge for Airtel or Jio but certainly, it can be a profitable number three and it would to an extent reduce the competitive intensity as well and benefit the sector as a whole.
But right now, in terms of investment strategy, the best stock with usual disclosure comes to mind is, of course,
. It is one of the most profitable pure play telecom plays available in the world and I will certainly recommend that over Vodafone from a longer term perspective.
