All banks are indicating that the worst is behind them. What is your view?
The numbers have been very decent and pretty much on expected line. The good thing has been that the restructuring on account of the second Covid wave has been much lower than what was initially feared. Banks are showing a significant improvement in the collection efficiency especially in September and October.
So the Indian banking sector, which for a while was in a tricky situation because of the huge bulge up in NPAs in some of the state owned banks, especially post the IL&FS fiasco, now is in a very fine shape. It can support the accelerating growth of the Indian economy. I remain fairly constructive on the sector.
One pocket of green is financials. The results are showing a comeback of sorts but even those counters where the markets were left wanting for more like , posted a loss of Rs 3,000 crore today, higher by almost about 7% in trade.
The good thing now is that we are nearing the end of the Covid crisis. The good thing is that the Indian financial sector is exiting the crisis on a much stronger wicket. The capital adequacy levels are pretty strong. The delinquencies or stress emerged because of the two Covid waves. Things are pretty much under control and in fact much lower than what was initially feared. Now, there is a significant improvement in collection efficiency across financials and more importantly, we are seeing strong signs of growth recovery in the economy that is translating into growth for the financial sector across both retail loans and corporate loans as well.
If I add up all of this and take a slightly more medium term view over the next two to three years, I believe that the financial sector will lead the stocks markets and recovery in the Indian economy.
Info Edge was your 2020 dhamaka idea. This year I believe you are betting on Aditya Birla Fashions. Is it just a reopen trade or do you think this stock is going to make money in the long haul as well?
I am positive on the company from a slightly more medium term to longer term perspective. If you look at consumer behaviour and as economies grow, one of the biggest category where consumer spend is apparels and as India now transitions from a $3 trillion to let us say $5 trillion economy over the next six to seven years, we will see a significant increase on spend on apparels or branded apparels from consumers.
Aditya Birla Fashions has emerged as the largest branded apparel company in India. During the course of Covid over the last 18 months, they have taken some strategic initiatives to broaden their portfolio and at the same time they have made their business far more agile and linear. I believe that over the next five or 10 years, as consumer spending improves, this company should recover very strong growth.
The irony is that the largest branded apparel company in India is actually a midcap player which is not the case in any developed country in the world. In fact, the leading players in branded apparels tend to be amongst the top 20-30 companies in the respective indices as it is in the US or Europe. I do not see any reason why it cannot become a large cap over next five to ten years.
Considering you track the digital/IT universe, could IT or any of the new age newly listed companies actually replicate that 2020 performance or do you think the best is behind us now?
It is a mix of two halves. Over the next one to two years, it is difficult to replicate the same performance because valuations are extremely rich and I must admit that in some of the IPOs that are happening around, I find it difficult to put my head around the kind of valuations at which these companies have been priced in for the IPO investors.
We are just at the beginning of the whole digital evolution as an economy and as a society. If I were to take a long view over the next decade or so, I still think that there is a huge runway for growth for all the digital companies and businesses. A lot more companies will emerge in the sector. So from a long term investors point of view, the growth opportunities are immense but the short term headwind or the challenges for investors are valuations in the sector are extremely rich.
