It was an action packed Tuesday and Evergrande added to the mix. Some said it is China’s Lehman moment, others said these are debt securities and nothing complicated like in the Lehman case and that the government will come to the rescue, etc. Long term, do you think the super bull run is here to stay for the equity markets?
There are lots of interconnected points but things may not be as interconnected as one fears. First of all, most of the Evergrande debt is local and so there will not be a major international debt event in case Evergrande does default. For example, if certain big corporations in India are facing trouble, it does not have major implications for global credit markets because India does not have too much external debt. It is a similar case with Evergrande.
Second, the implications probably will be more sectoral in nature. If the real estate market in China does slow down because of this, then probably we will have an impact on commodity prices because China’s real estate and infrastructure are the biggest consumers of the commodity like steel, copper, aluminium, etc. So while there might be some impact on the commodities market, there wouldn’t necessarily be a big impact on the risk approach to the international markets.
So is the next rally going to come from risky assets? Do you think that maybe this is the time when the cyclicals get back in favour?
I would say that global cyclicals pretty much have had their run and global commodities have done very well. So, there is very little to propel them even further from these levels, given the slowdown that we are seeing in China, which is the largest consumer. If we are looking at cyclicals and the bet is that with the busy season coming in and the worst of the lockdowns and the impact of the second wave not being as severe as it was thought to be, the domestic Indian cyclicals should be the preferred bet.
The next few weeks will be very important in terms of gauging the trends of domestic demand, especially in the consumer segment and that is what one should play next. Anyway, global facing sectors like IT and pharma have been doing very well because of very good traction in the US economy and to some extent even the European economy. Those segments do continue to see good traction, probably even accelerating the traction as we have seen in the stock prices. But the next leg of the market hopefully will come from the domestic cyclicals that includes domestic discretionaries like auto, building materials, cement and last but not the least, financials and banks.
The reopening trade has been pretty strong– be it multiplexes, hotels or even some of the aviation stocks are making a comeback. As an investor how would you position yourself here?
I have also started travelling a bit and it has been a really big relief to get some fresh air frankly. I guess the market is looking ahead, isn’t it? We have seen hotels, multiplexes and lots of reopening trades happening and probably the theme about revenge travel will also come true if there is no third wave. So, definitely there is a theme there.
What are your thoughts on the realty pack? Do you believe that real estate is headed into a multi-year bull cycle or is this just at best a temporary move?
No country in the world has been able to grow at high single digit or lower double digits without the infrastructure and real estate sectors simultaneously moving up. So, if India has any hope of achieving that 7-9% GDP growth for the medium term, then it has to be backed by growth in the real estate segment.
On the infrastructure front, lots of things are happening on the government side though the private sector is still not that strong. But we hope that with the manufacturing, PLI schemes etc, it would get traction. That leaves us with the real estate piece. I certainly hope that with low interest rates and job creation, this segment should begin to do well. We are seeing good traction, a little bit of pleasant surprise on the commercial real estate side and if the white collar job creation continues the way it is in the IT space and hopefully in other services place, then we should see some good traction in cities like Bangalore, Hyderabad and Pune where there is a lot of white collar IT linked jobs.
