What are you expecting from the RBI policy?
Things have kind of worsened from the monetary standpoint since the last February meeting and we are still not out of the woods as far as corona is concerned. There are a whole lot of uncertainties and I do not think there is a compelling reason for RBI to change its policy stand or increase the interest rates at this stage. The MPC will prefer to wait and watch and not tinker with the rates at this stage.
The rise of interest rates, if at all it comes, is still 6 to 10 months away. It is not going to happen now. The RBI governor has indicated that they will not be in a hurry to increase the interest rates or tighten the purse strings. That is a stand which central bank governors across the world have taken and they have articulated this very clearly to ensure that there is no taper tantrum like what we had witnessed last time round when the central banks were pumping liquidity and there was a huge fear in the market that they will start tapering the liquidity taps. That is not going to happen and the central banks are determined and committed to ensure that. We need not worry about interest rates going up at this stage.
What are you pencilling in within the telecom basket?
If you look at the overall scenario, Bharti is one stock which we have been positive on for some time. The African business of Bharti has definitely turned around. Domestic business also has been looking up for the last two-three quarters. In fact, their numbers additions have been far better than even Jio and we all know that Vodafone had been losing customers. So overall, the way they are positioned in domestic businesses and the way they participated in spectrum auctions very clearly showed their determination to fill in the gaps in their spectrum coverage and ensure that they continue to maintain their leadership position at current levels. It has got a long way to go up.
There is definite resistance and selling is coming around the Rs 600 levels, but at some stage we are confident that it will cross that and investors who have a slightly long-term horizon can definitely look at buying into Airtel. I would also mention that probably there will be some attempt by the company to monetise their digital assets by creating a platform like what Jio had done and attract investors in that platform. We will have to wait and watch but they are gearing up for that and some amount of shareholding restructuring that happened between their private equity investors and the promoter group indicates that.
It is also encouraging from the point of view of the investors and shareholders. I am positive on
. As far as Reliance is concerned, Jio is a part of it. Overall I have been bullish and I believe there are multiple factors to buy Reliance at current level particularly after it has come down below Rs 2,000 post the recent corrections in the market. We are looking at a price level of Rs 2,400 plus within one year period. There will be oil to chemical (O2C) segregation and maybe a separate IPO in O2C. Monetisation of the Jio business through an IPO as well as the retail business is definitely in the offing. One does not know whether it will happen in a year’s time or later. But at the current level, the stock looks very attractive from investors’ point of view.
Coming to the telecom business, Jio ARPU improvement is critical and I will be keenly watching how that pans out but they also have done their bit on the spectrum auction. They have aggressively bid and filled up their gaps in the spectrum. So we can expect a duopoly kind of situation where Bharti and Jio both dominate the Indian telecom space.
Where do you stand on IT numbers? What are you pencilling in by way of commentary, deal wins, earnings growth, guidance etc?
Undoubtedly, this is going to be one of the best quarters for retail IT. A few things have happened, which have given a huge tailwind for Indian IT; one, this lockdown has pushed companies to move more and more towards digitisation and outsourcing. This has helped Indian IT in a big way. So many top tier IT companies like Infosys, TCS, Wipro, HCL and the midcap IT companies are going to come out with very good results.
Point number two, it is going to be the currency situation. The way the currency is poised, somewhere the experts around the world believe that the dollar weakness period is getting over and it will start getting stronger vis-à-vis emerging market currencies including India. Even a 1% move in the currency causes earnings of IT companies to go up by a multiplier of that. So, Indian IT looking forward should be giving good guidance as well.
Now the third and most important thing to watch out for in their commentary would be the next quarter estimates. There, we will have to be a little careful. What they talk about the deal wins will be also carefully watched. So between the largecaps and midcaps, at this stage we prefer the midcap IT companies. Not that we do not like the large cap IT, but if we have to look at the relative opportunity, then we will look at the midcap space.
In the midcap space, a whole lot of companies including the recently listed ones like Happiest Minds look good, Mphasis looks good. Some of these companies having started much later, started with digitisation and their digital business is a significantly higher portion of the overall portfolio vis-à-vis the larger companies where they are around 50-60% at best. The digital gains are going to be significantly higher and we believe that the midcap IT companies will disproportionately gain over the next six to 12 months. We would like to bet on these companies at this stage as safe investors. But Infosys, HCL Tech and even Wipro still look good.
What about specialty chemicals? SRF, Navin Fluorine — all are seeing fresh breakouts. Is there opportunity there to invest afresh?
Absolutely. In fact, in the last 12 months we have been bullish on chemicals and specialty chemicals sector. This is going to continue. Indian chemicals and specialty chemicals are going to have a fantastic run for the next at least 10 years. There are two things which are happening; one, people are looking at alternate sources of supply vis-à-vis China and India definitely features prominently.
The second thing which is happening is India is becoming a large manufacturing base with multiple schemes that the government is offering.
The third and most important thing is this is one sector where we had a few good, well established companies with diversified customer base. Look at Aarti Industries, SRF, Navin, Deepak Nitrite — these companies may not be of a global size but they are big, they have established customers, they have established manufacturing processes and the global buyers are liking that. They are going to be flooded with orders. We are seeing just the beginning.
An investor with a one-year time horizon has absolutely no problem in getting into even an Aarti Industries or in SRF or Navin at this stage. I will be a little sceptical of the smaller ones at this stage because they have run up quite a bit and they probably do not have the wherewithal to scale up or move ahead very soon. So one needs to be a little cautious about the Meghmanis of the world probably considering the valuations but the bigger chemical companies can be looked at current levels.
