Given the underperformance of the market of late, do you think farm law repeal paves way for further market underperformance? Further could the reform process of the government come under question?
Farm law repeal is irrelevant from the market standpoint. However, different lobby groups could become stronger and try to oppose moves on strategic disinvestment, privatisation and banking reforms. They will realise that if the protests are long enough and if they continue in a manner where they disrupt activities of common people, then eventually the government will bend down. So, that risk is there.
On the other hand, we have seen that when one thing does not work, this government actually comes back aggressively on the other side. So that is also a possibility. It is very tough to take a bet on these things and in any case, I do not think that huge reforms were the reason why the markets were actually doing what they were. I would think that we need to take things as they come.
If the government at some stage going forward, eventually starts buckling down on banking sector reforms or disinvestment, then we would be concerned. I would take this as a one off incident at this stage.
Over the weekend, we saw the $15-billion Reliance-Saudi Aramco deal getting called off, saying they will evaluate it. What could be the next trigger to watch out for when it comes to Reliance?
I have read many analyst reports. Most of them think this is not relevant for Reliance and Reliance actually fell in the run up to this news so the actual near term impact is something we need to see because Reliance stock typically does not behave like most of the stocks in reaction to news flow. However, in my view it is a significant negative because legacy assets — oil to chemicals (O2C) amounts to nearly 35% of the balance sheet still. That is something where the value is going to decline going forward and that is the big cash flow at this point in time. The rest of the businesses are not generating too much money.
So in my view it is a significant negative because all these new age businesses where Reliance is proposing to invest, will take a long time to turn profitable — at least for the next five years. So this deal seems to be shelved more or less. I would think it is a negative for Reliance for the medium to long term.
Today morning, we have seen Bharti Airtel announce tariff hikes averaging about 21% across the board. How do you think the stock is going to react to this? Would Vodafone Idea and Reliance also be in focus?
From the Reliance perspective, it is a marginal impact because pure play companies are impacted the most. Typically conglomerates should not react so much but pure play companies would react. Bharti has been one of the leaders in taking out these measures to bring tariffs to more sustainable levels and other companies have followed.
Reliance also has not been pursuing an aggressive price war because they have reached a market share and going beyond that is going to be tough for them. I would think it is positive for the overall telecom sector, specifically Bharti and as a rub off for Vodafone Idea also.
