Is the optimism in the markets here to stay?
The market had run up sharply last financial year on the back of the opening up of the economy and the bounce back in demand and growth. Now with the second wave of pandemic spreading fast, there are some restrictions which are acting as speed breakers to the overall journey that we are likely to see. We are not expecting the second wave and the lockdown to have a much bigger impact on the long-term earnings growth story given that we have already seen the impact of lockdown last year. While the government as well as the corporates are well prepared this time, the lockdown is not as severe as last year’s and we are seeing a lot more activity.
The other major factor is that we have already started with the vaccination process. The government has approved the third vaccine now and hopefully we should have more vaccine approvals in the months to come and that should help overcome the pandemic challenge that is in front of us. The broader market — which means the midcaps and smallcaps — is doing much better, given that they have seen more efficient operation over the last few quarters.
We are seeing an increase in demand and a lot of shift towards organised players in this pandemic. A lot of home delivery is allowed where the listed companies or the organised players are gaining market share. Overall the view remains quite positive. We believe that the earnings growth momentum which was missing for the last few years that got kick started because of the pandemic in FY21 and should only improve from here on. It should lead to steady market growth in the years to come.
The entire disinvestment buzz has suddenly died down. These were most sought after about a quarter back but since then have taken a backseat as opposed to other sectors?
The news flows regarding disinvestment has also slowed down. We had seen a lot of activity around the government effort to privatise or disinvest some of the large PSUs. The government had taken to reorganise BPCL so that the sale becomes easier. Now with the financial year ending and a new financial year beginning, there is not much news flows coming in. Nonetheless, some of these are purely a disinvestment play as and when the news flows start coming in, would start doing well.
According to me, the best bet would be BPCL, where a lot of effort has already been taken. It is a matter of time where things will take place and maybe we will see the disinvestment of BPCL. Till then, the volatility in the crude oil prices are limiting the upside or the stock prices.
A lot of development has taken place in but the actual transaction has not yet taken place. But we believe the government is very serious this time and these disinvestments should take place in the current financial year.
What is the outlook on oil and gas space? What do you make of the moves in ONGC? has been quite tempered of late and throwing in some of the OMCs as well to the mix?
There are two parts of the oil and gas space; one is the clean energy stocks which are the gas stocks which have done really well. There is pretty growth in volumes as well as pretty strong and steady margins and the fact that a lot more cities are now opened up for development that is adding to the growth in the city distribution network.
Coming to the core oil companies, some of these players on the upstream are benefitting out of the crude oil price hikes and are likely to report strong numbers. ONGC is clearly benefiting. Some of the OMCs are likely to report strong numbers on the back of the mark to market inventory gains because of high crude prices.
Reliance was revolving around the telecom business which is Jio and the retail business and somewhere in the last few months, the market has stagnated for Jio and the sharp up move in valuation that we had seen in Reliance last year on the back of various deals that has plateaued. So overall, the heavyweights like ONGC and HPCL would report very strong earnings and should continue to do well.
We are expecting a steady quarter of 18% PAT growth for Reliance and the stock could remain lacklustre till some fresh triggers.
What about the auto space?
The monthly numbers so far have been pretty good. The only concern was that metal prices have been tearing off the roof and that could impact margins. Some of the auto companies generally take a price hike towards the beginning of the year in January. After many years, they have to take a second price hike within a short span of two to three months. That goes on to show the impact of the raw material costs on the auto space.
On the back of that, there are restrictions in some of the key states like Maharashtra and now Delhi which could also impact the growth in the near term. So overall, the auto space could remain lacklustre in the near term. Only the tractor segment could continue to do well. The earlier forecasts from Skymet and IMD have been good. We are likely to see a third consecutive year of good monsoon and that should continue to put the tractors in the good stead and hence M&M is something that we like in the auto space.
