On
Tata Motors has done well in the last one year but the rest of the auto sector has underperformed and we are seeing a rotation into the sector. Salary hikes across corporate India are north of 10% and some of the industries like IT, pharma, chemicals are giving bigger hikes. This gives confidence to people to buy cars and the valuations are undemanding. Also, exports are holding up. Autos will do well going into the festive season.
Should investors add or buy afresh in realty names?
Realty is a very location specific, region specific investment. Sobha and Prestige are largely in and around Bangalore where the IT industry is doing phenomenally well, salaries are going up and new jobs are being added. That creates demand and there is a huge amount of unsold inventory of all the real estate companies. This creates easing up of the cash flows for the real estate companies. I think that trend will continue. It is region specific and in some of the stocks like Prestige, even after this there is still some upside left.
Would you recommend investing into any of the power companies? Tata Power is your favourite?
Yes Tata Power as well as NTPC — both these names continue to look good. NTPC is trading at probably 1.1 times book which is at a historical low to its own multiple over the last several years. This is on the back of low plant load factor currently and as it goes up, that will add to the operating leverage. We have not even been talking about reforms that can happen in this sector. Demand is coming back and valuations are undemanding.
Tata Power also has access to coal. The Indonesian coal is slightly more expensive but it can be used to be traded in the global market for Tata Power. So these companies are well positioned. There is still another 20-30% upside in each of these stocks.
What are you recommending investors to do in Bharti, tender into the rights?
Absolutely yes. The rights currently are probably trading in line with spot market price and as one looks out into the future, until the point when the rights issue is closed, from that point in time, these debt levels are going to come down and ARPU is expected to go up.
By then, one would have a more favourable outlook on the 5G spectrum usage prices and so the subscribers of the right will buy it at an attractive price, by the time they buy in various tranches. So trading the rights as well as subscribing to the rights looks very attractive.
Even though we are in a bull run caution is setting in. Is it time to skew the portfolio towards deep value stocks? Are you sensing this change in mood?
Right now, we are seeing a return to normalcy in India. The economy is beginning to revive, unlocking is happening and therefore whether it is the hotel companies like Chalet, Indian Hotels or Thomas Cook, all these are certainly seeing a lot of bookings. When they report the next quarter, you would see really strong numbers. Now is this one off? I do not think so because it is normal for people to holiday, it is normal for people to go to retail store, it is normal for people to go to a Bata shop.
But schools have been closed for the last two years. There has been no need to buy new school shoes. Now schools are reopening and so normal growth is coming back. In addition to that every company has realised that they can sell things online, they can cut their costs and margins will improve. I think this will sustain and will help in improving margins. We will have to identify the next beneficiary as India unlocks.
Does it make sense to add positions to any of the gold financers?
Gold prices in rupee terms have largely remained stable over the last one year or so. A person walking in to borrow from Muthoot or Mannapuram is a small business person; he needs money to restart his business. The unlock is happening and so he or she begins to see businesses coming back and therefore goes and pledges gold and is happy that gold prices have remained stable.
As far as the company is concerned, they sell a very secure borrowing. As long as gold remains steady, their loan to value, their NPAs remain in check and the valuations are absolutely fine. Mannapuram is probably cheaper than Muthoot. As India unlocks and demand for credit increases, the pledging of gold by the small business person increases, Muthoot and Mannapuram will do well.
