Is it a good time to buy a Sobha or a Godrej or Indiabulls Real Estate this fall or the classic name like?
Companies that focus in residential real estate like Godrej or Oberoi for the most part, would be interesting and given the work of the domestic environment, especially vis-à-vis technology companies. These are the first adapters in video technology and so on. But if this persists after Covid, businesses that focus on residential real estate will do extremely well. But you actually have to look at cement stocks because it is a great proxy for playing real estate in India.
Praj has done very well. There is a trend for the blending of ethanol in fuel to increase, which means that ethanol manufacturers, ethanol machine suppliers, and ethanol blenders will increase. It’s a small but powerful theme. EVs and the whole migration to clean fuel contribute to this theme: is there something EV space or clean fuel space on your radar?
I’m glad you raised this because I was reading this weekend an interesting report from a major investment bank that said copper is the new oil and it took me by surprise. The report says it is a game about renewables and alternative energies like solar, wind and geothermal. They say copper apparently has the physical properties necessary to transform and transmit these forms of energy to the end consumer. Over the past 12 months, the price of copper has increased by 80%. This report indicates that the demand for copper will increase by 600% by 2030 and that this could be an interesting way to play. I can think of
. I’m not sure if there are any other companies related to the copper cycle, but it’s definitely worth exploring.
There is this proposal that EV will lead to the disruption of the existing combustion engine. But whenever this disruption occurs, do you think it will always be dominated by existing players like in the IT space? When EV takes over and the combustion engine or ICE slows down, will the Marutis, Mahindra & Mahindras and Tata Motors be the winners?
Yes, many Indian companies and of course global companies will dominate. I was looking at the latest Mercedes-Benz. It’s very high end, but they released an S-class car which is very expensive, but now it can go 770 kilometers on a single charge, which is a lot more than Tesla can do.
So the point is that the technology will continue to improve and Indian companies are smart enough to invest and focus on this area. Mahindra & Mahindra have publicly stated that this is going to be an extra priority for them. But it’s still a long way off. I don’t see it becoming mainstream yet. Let’s take a look at the number of cars sold worldwide in the EV space. It is tiny at less than 2%. So it might be a bigger reality in five years, but in the next 12-24 months, I don’t think it’s really a big deal. There are very few ways to play this today. So if you’re positive about the auto business, you can still buy a Maruti – whether it’s EV or not – today.
What is the outlook for fourth quarter results? How do you see the impact of the Covid wave on overall income? Are you going to lower your income estimates?
Yes we would. What looked like a fantastic quarterback was cut short. We had a very good fourth quarter based on what I heard from the channel checks for Q4 FY21. This quarter was looking good until the new epidemic and it seems to be getting worse day by day. We have to see how the government – both central government and individual states – reacts, but there will be at least a quarter if not more of an impact on revenues and therefore on GDP and a whole host of other downstream parameters. . This is a concern, yes and this is where the Indian market would offer the opportunity to buy in the event of a dip. We remain largely positive for the next 12 to 15 months.
And do you like what you have seen and heard regarding policy initiatives on the investment cycle, on the PLI system, the infrastructure and capital goods sectors? Is that enough to offset the kind of pressure they have been subjected to as a result of the government-induced lockdowns?
The answer is definitely yes. I think the government has clearly bent back to launch the PLI program and it has gone sector after sector and announced a series of initiatives. This is all very well. We just need to see some evidence of this panning. On paper this obviously means that huge capx are coming and it will obviously benefit everything below, be it demand for steel, cement or capital goods. .
There is massive fiscal stimulus as well as infrastructure spending by a multitude of countries around the world, including India. This is all great, but my biggest concern is how is the government going to pay for it? I appreciate that the FM and PM are very focused on infrastructure spending, but this needs to be supported by revenue and although tax revenue has improved dramatically when it comes to GST a huge part of the population, which should pay income tax, does not pay taxes. Second, of course, the privatization and monetization of assets. There was a lot of talk about this, but let’s be realistic about what we ended up doing in FY21. We have reached just over 10% of the target. Targets have been lowered to Rs 1.75,000 crore. We don’t have a figure on asset monetization yet.
If the government takes this seriously and starts selling assets, there is a huge amount of private capital waiting to get some of those assets back. I think the government has a pretty good chance of hitting some of these investment numbers when it comes to infrastructure, but it will have to start working overnight to sell assets. This is really going to be the key to how fast they evolve, as we keep hearing about the formation of committees and the political actions taken, but now let’s see what action needs to be taken.