It is often said that when leadership cracks, that is the time you get worried. Is Bitcoin a crude indicator of how risk in the world is moving? In this kind of a scenario where bond yields and crude are going higher, Bitcoin should have reversed by now?
The Bitcoin market at the best of times is a little opaque. So to say that it is a very efficient indicator is too early as such. This is again a very supply-demand driven oriented market. So I would not really necessarily buy the agreement that the Bitcoin is really an indicator of risk on-off as yet.
Every indicator is suggesting that the demand for metals is strong and robust. Will metals and especially steel or cement qualify for buy on every decline?
The economic indicators all seem to be very robust and indicate that the economy is back. So yes, whenever you see corrections happening in metal stocks, they would qualify as buy indicators for the broader spectrum. However, I do not really profess to be a big specialist as far as these cyclical plays or metals are concerned. We continue to chug along in our normal perspective. We are focussing on growth companies, companies which we feel are going to do exceedingly well going in the next three-four years and which have shown resilience in the past.
We are not really playing this whole cyclical trade out but clearly empirical evidence seems to suggest that if you do get a correction in some of these stocks, they should continue to do well considering that they are quasi economic indicators.
We are seeing activity picking up when it comes to the entire infrastructure sector and the general sense is that things are seeing momentum. How would you be playing this space?
I think that the problem with infrastructure space is that it has a very heavy government interface where orders are dependent on government interaction. When interest rates go up, working capital-oriented businesses will have to start bearing those interest rates. We are not great fans of these businesses and they have consistently been shown to be good short-term plays but not great value compounders over extended periods of time.
That brings us down to a very few businesses within that space. Cement is a very obvious choice, It is a quasi infra play. Cement companies have great economics and in a good cycle, they can create a lot of wealth. The other one that should do much better within the infrastructure space would be the bellwether stocks in the sector which is L&T. Considering the size of the business, and the kind of order flows that are flowing through, they have managed their working capital far more efficiently. They have a broad diversification across the sector and that is the way one could probably play that.
Retail is one space where disruption is real with the Tatas moving into BigBasket or Reliance moving with Jio Mart. But Trent, , VMart, Aditya Fashion are still trading at commanding valuations. Are we missing something there?
The only thing that is being played out here today is that organised retail is even now a hugely underpenetrated market in India. It has got a long way to go. As the economy grows over the next few years leading to growth in per capita income, we are only going to see retail spending, given that aspirational levels have gone up.
So, there is a long way for retail in India to go. Having said that, disruption is real but a lot of these players are also investing there and putting one of their legs into the digital space like the Tatas getting into BigBasket.
They are all having a quasi model like DMart. While you can order online, they have the DMart stores where you can go and pick up in local areas. All are using these quasi models to grow because in India, a) online retail is very small; b) online penetration is not yet very high considering that broadband is restricted in some of the metros.
But they have a long runway of growth from now for many years to come.
Are you comfortable in allocating fresh funds to multiplexes, aviation or hospitality?
If you are talking about Covid survivors, the first choice would be hospitality. Not that we are very great fans of investing in hospitality because we have seen this whole business segment of hospitality over many years and they have not really created value for people.
Within that, we can look at some of the new age companies like a Lemon Tree which tried to follow an asset light model because clearly domestic travel is picking up and domestic tourism is picking up as people are not able to travel out of the country. So that would probably be the first segment.
I think the multiplex segment is probably going to take some time to come back considering that you are not really seeing very big ticket releases which could draw people back to the market. So within the Covid survivor space, I would probably focus more on hospitality or on retail. Maybe something like Phoenix should do well going ahead.
