Pankaj Murarka,
Founder,
Renaissance Investment Managers,
What is your take on the markets? Realty and metal were the sectors investors fell out of love with over the past couple of years but in Samvat 2077, everyone fell back in love again with these two sectors. Was that the case for you also?
The real estate sector, from a capital market perspective, has a huge potential. It is about 10% of India’s GDP and it is a sector which absorbs about 40% of household sales. In the stock market, the total market cap of all the real estate companies taken together is less than 3% of the total market cap in India. So obviously there is a huge disconnect between the value of real estate as a sector from Indian economy perspective and what it reflects from a stock market perspective.
Given the fact that we have seen a very strong hiring from IT companies over the last one year and that has percolated into strong buying in real estate in India, that will sustain. I remain extremely positive on the outlook for the real estate sector in the next 10 years. The next five or seven years will be relatively good. Given the fact that the stocks have done extremely well over the last year and a half, they can go for some sort of consolidation of cost for a while.
The outlook for metal remains reasonably positive from a slightly more medium term perspective.
What is that trump card in your picks?
Well the first stock I am extremely positive on is India’s bellwether bank
. It is probably the largest bank in India. SBI over the last five-six years went through a cycle of corporate NPL as a result of which their P&L was significantly impacted. During the Covid crisis, it emerged as one of the banks with the finest asset quality, even better than lot of private sector banks.
Next year State Bank will revert back to its strong growth credentials as well as qualitatively on its balance sheet numbers in terms of achieving ROEs of 15% which is what State Bank of India has always done historically. The bank is in for a strong profit growth and book value accretion over the next five to 10 years.
What will be your next pick?
Yes, I am very positive on Aditya Birla Fashions. It is the largest branded apparel player in India and I firmly believe that as the economy unlocks and life normalises next year we will see revenge spending coming back in the Indian economy as well like we have seen in the western world as those economies unlock.
Consumers have not spent for a long time and they have not gone out. Everything that relates to discretionary consumer spend should do well and Aditya Birla Fashion being the largest branded apparel player should be a big beneficiary of that.
The last 18 months of crisis made their business far leaner and agile and cost efficient and they have made their balance sheets cleaner, corrected the capital structure and also have done a few acquisitions. As consumers step out and consumer spending increases, Aditya Birla Fashion should do significantly well. We firmly believe that the company can do a high teens kind of a cash flow growth over the next 10 year. That makes us extremely positive on the outlook for the stock.
Tata Motors is among your picks. It is entering the EV space. Where do you see it going next year?
As far as Tata Motors is concerned, it is a company which is firing from all the three cylinders and there is value of the EV as well. I remain extremely bullish on the commercial vehicles segment in India from a business outlook perspective. Over the next three years, if the Indian economy is going to grow at about 8% or so, the average commercial vehicle will be the fastest growing segment in the entire Indian economy growing at about 25% CAGR over the next three years.
Tata Motors being the largest commercial vehicle player in India will be a big beneficiary. When it comes to passenger vehicles, again there will be a very strong growth in passenger car demands in India over the next 10 years. We have seen Tata Motors’ share in passenger vehicles rise from 4% to 10% now and that is further increasing. With reasonably healthy shares in passenger vehicles at about 10-11%, as the passenger vehicle demand recovers, Tata Motors again should be a big beneficiary of that.
Finally they have a big global luxury car business in JLR which has not done well for the last five years but that business has turned around significantly and is going to reap significant dividends for Tata Motors over the next three years. They are firing all the three cylinders and there is always an option value of EV because today while the EV segment overall is small, Tata Motors has about 75% market share in EV’s in India. So as EVs grow in India, Tata Motors will be a dominant player in that segment and that will be an option value which will play out over the next five years.
