One of the factors that a lot of people are watching out for is the auto sales numbers bang in the middle of the festive season. Seemingly ’s numbers are slowly getting back to normal. Are we past the worst? Would you bet on any of these counters at these levels?
Regarding the auto space, as you rightly mentioned, we are on an upward trajectory and this being a cyclical sector we are coming off a low base.
What we anticipate is that in the next 6 to 12 months, there will be a slew of new launches from various companies as also the leader in the market, particularly the passenger vehicle market. That should spur growth in this space over the next 6 to 12 months and once the economic engine starts moving, it becomes a virtuous cycle as interest rates are lower, there is greater attention towards passenger vehicles and in the current scenario also because of health reasons people want to go in for personal vehicles.
In that regard, we do see good days ahead for the auto space in general. In the two-wheeler space, the situation is slightly complicated because there is a two-wheeler EV market which is looking to be becoming quite a vibrant market over the next say one to three, five years and we will need to see who will have the right to win in that space. The market remains a little complicated but the passenger vehicle market looks to be doing quite well.
The other theme that has gotten a lot of people excited is the real estate pack and quite a few of these stocks have run up in anticipation of a boomin the space, anecdotal evidence and even data points suggesting that the residential market is heating up. What is your view and what stands out to you? Are the valuations comfortable at these levels?
This is a very interesting space because of a number of regulatory measures the number of real estate developers in this space have contracted by as much as half over the last six to seven years. The developers who remain are becoming more and more organised as opposed to highly unorganised space the sector used to be earlier.
In that context, if we look at the current scenario, because of the Covid scenario, people want bigger houses, their own houses and want to spend a little bit more on real estate. Just in that context, it looks like demand for this space should look up. Add to that the fact that interest rates are at a multi-year low, at least in my working life I have not seen mortgage rates at 6.5-6.75%. I really have not. The lowest that I remember mortgage rates going to was about 7.5-8% and it was way back towards the early 2000s, maybe mid 2000s or something.
Now real estate prices over the last say seven, eight years have corrected if not in absolute terms, they have corrected on time and so affordability of real estate across the board has moved up. Take all these things together and it does look like we are in for very interesting days for real estate going forward, particularly residential real estate and so with every dip in this space. I would be a buyer rather than a seller.
These are early days where you will see volume growth and not so much price growth because these are end users who are buying although anecdotally I am also hearing that there is price growth and price appreciation also. As that becomes a virtuous cycle, 6 to 12 months from now, we will start seeing price appreciation as well because investor interest will rise.
If you had to pick up just one banking stock in your portfolio, be it a private bank or a PSB, which one would you go for if you had to buy afresh at these levels?
I would like to answer this more broadly than taking an individual name. The banking space is getting consolidated in favour of the larger players and the well capitalised players. If there is an observer of results in the recent results, it is not very difficult to figure out which banks are really doing well on two aspects; one is growth, the second is on slippages that is NPA accretion.
In our judgement, banks which are doing well on slippage reduction as also on growth coming back with capital in hand, are the banks that should be bought into at this time. And I would restrict myself to the top two or three banks in either the private sector space or the public sector space.
In general, if you were to take my view I think that the PSB or the public sector banks look very attractive on valuations and so for a high risk taker and who is okay to go with a little bit of ,volatility that space looks quite interesting in valuation terms as it is poised on earnings growth and slippage reduction. So that is how I would think about it: buy the bigger one, buy the ones which have sufficient capital and buy the ones that have recently shown growth and slippage reduction.
What do you make of the news on ONGC that some fields can be sold off to some of the private or foreign companies?
In general status quo-ism leads to laziness and it leads to subpar performance and it holds for individuals as also for companies. Now if there is an asset which has been producing the same amount of product for the longest time while its potential is significantly higher, then a little bit of shaking of the system will definitely help. History proves that a shaking up of the status quo as the way of operating has really helped the PSUs over the past years. If this is the intention for the case that you just mentioned, I would assume that going forward it would only be good because for the longest time, one has heard that the potential of this field as also fields around it has been quite substantial but the output from it has not been matching expectations. I would say that the shaking up of the system should be good for the company as also for the shareholders.
