Can India continue to outperform in the new trading week? What is going to be on your radar?
India and the world have gone through a number of self inflicted problems as well as some natural problems. Now some of the natural gas price increases are because we are coming off last year’s worldwide lockdowns and as the world opens up this year, it has put the supply chain under pressure in the various gas companies and there is a shortage of gas.
On the other hand, all the ESG and environmental factors are restricting the carbon trades. One needs fossil fuels because that is actually more than 75% of the world’s energy requirement. In this crossfire, we are seeing prices going up and the markets going down because it creates an input pressure right from factories to countries.
But there is enough resilience left in various pockets in the Indian market and yes, there might be a correction or two but the trend is intact on an upward path.
Coming to your picks, this update clearly is positive for the likes of ONGC but beyond that and perhaps also the PSU theme you are seeing, are you seeing anything that is attractive at these levels that you can nibble into?
In India, gas prices are revised once in a couple of years whereas it is real time in the rest of the world. Gas prices have gone up by about 50% in just this calendar year worldwide and that is not reflected in India. That is being priced in now with a 62% hike. As a result of that, companies like ONGC, Oil India will see significant revision of their earnings but the risk that we run with ONGC is regulatory risk of capping prices.
But the nicer way of playing it is
which will probably see about a 5-7% earnings upgrade and also as we go into the winter season where demand for gas and oil is high, Reliance Industries will be a natural beneficiary.
Among PSU banks, still trades at about 0.4 times book and that tells us that it is less for a normal range of about 0.8 or one times. So the capital position is strong, NPAs are going down, provisioning is far better and corporate risk is coming down. So within the banking sector, Canara Bank looks good.
