What is the famework that you are adopting right now to play the ongoing market cycle? Do you think economy-facing sectors will start doing well?
Our investment philosophy is GARP – growth at reasonable price. Investing in equities is all about investing for growth. We have to look for companies that are growing, but it is also very important to know the price you are paying for growth.
Broadly, we like four themes. The first and foremost theme is digitisation, whether it is IT or internet. We will see increased spend in IT. Companies that are engaged in this business will do well, whether it is software companies or internet companies, whether it is a global opportunity or Indian opportunity.
The second theme we like is healthcare. There are two trends. Indians are going to live longer than what we used to do in the past. This means we will spend more on healthcare. The second driver is export opportunity. Indian companies now have a fairly reasonable market share in the US and a few other markets. That opportunity will continue to grow. This pandemic has proved that Indian companies can address this market.
The third thing we like is financialisation. Even today there are only four crore credit cards vs 75 crore debit cards. So the penetration of credit cards has a long way to go.
The fourth thing that we are playing is consumption. This is a theme that we are playing across our global funds also. In India, the middle class will continue to grow a lot in the coming years and all sectors catering to this segment will continue to do well. It is essentially on the discretionary side.
On capex themes, I think it is more of an opportunistic play. After almost 10 years, we are seeing some recovery in capex spending in the country. We are positive on this space as well.
Which is the most attractive opportunity in the entire healthcare space in your view?
There are two clear opportunities. One is the domestic market opportunity, second is exports. Indian pharma companies have invested in expanding both their capacities and capabilities over the last five-six years. As a result of that, there has been lesser regulatory issues. But I do not think this can be taken for granted. Pharma companies continue to invest to ensure that they meet all the norms. So I am bullish on companies that are catering to domestic market with secular therapies. We are looking more at companies that have been catering to global clients and trying to build their own distribution network. So many companies have made significant inroads in this. We have been overweight on pharma and that is one of the key driver for our very strong performance in the last 18 months or so. We remain positive on pharma.
Power stocks have been buzzing over the last couple of days. How you analysing this pocket because it is quite cyclical?
Actually, the business is not cyclical at all. Power consumption has been growing steadily for many years as the per capita income goes up. We will consume much more than what we are consuming today in terms of electricity and companies that are catering to this should do well.
In 2006-07 when power was a hot sector, there was excessive investment as everybody thought they can make tonnes of money in power business. In reality, given that it is a regulated business it is not easy to make so much money. In addition to that, in the last two-three years concerns over traditional or coal-based power plants have been increasing, leading to massive de-rating.
In the last few months, there has been a clear revival of interest in the power sector. First of all, these companies have clear PPAs which last for 10-15-20 years. Look at the valuations they are trading it. The dividend yield is 4-5%. I think there is a definite case for investment into some of these companies where you are sure about the business model and the valuation that you are paying for.
