Pushkaraj Kanitkar, VP (Equities) at GEPL Capital feels the long term trend of the Indian equity markets is bullish and any event based downfall will be temporary.
On the sector, he said specialty chemicals should be a high growth lucrative opportunity going forward. “Despite the sharp run up in the valuation multiples in some companies, the competitive advantage still remains and would continue to for the near future.”
He feels auto ancillaries also remain great opportunities, especially those tilting their portfolio towards electric vehicles (EVs) and investing in research & development (R&D) to make the pivot from ICE (internal combustion engine) to electric drive trains in the years to come.
Q: Evergrande crisis rattled investors’ sentiment globally. Do you think it will be a bigger cause for correction across the globe including India in coming days or it is a short term concern?
This would prove to be a trigger for the markets to see a welcome correction after a relentless one way move. However, as is true with any event based downfall, the correction will be temporary. Once the froth is taken out, we will be back to the longer term trend, which is bullish.
Q: Finally the government announced moratorium of four years on payment of adjusted gross revenue (AGR) dues for cash-strapped telecom sector. How will this moratorium help the sector and do you think it can solve the problem of the sector? What should be done to solve the sector’s crisis?
The moratorium definitely provides a cash flow relief to the telecos, which can now redirect some of their flows into much needed capex and 5G investments. Sustainable tariff increases are inevitable for the businesses to return back to the 15 percent Return on Equity, with around Rs 250 average revenue per user (ARPU). Since there is no relief on the quantum of the liability, without a sustainable tariff increase – the stress is merely being delayed and not tackled. The removal of non-telecom revenues from the definition of AGR and the removal of penalty has been a much-needed change.
Q: Have you spotted any themes which have to be part of portfolio from here on, and why?
Specialty chemicals should be a high growth lucrative opportunity going forward. Several companies have outlined their plans to increase capacity and enter into newer chemistries. They enjoy dominant presence in key specialty chemical products, and a diversified clientele. Despite the sharp run up in the valuation multiples in some companies, the competitive advantage still remains and would continue to for the near future.
Auto ancillaries also remain great opportunities, especially those tilting their portfolio towards electric vehicles (EVs) and investing in research & development (R&D) to make the pivot from ICE (internal combustion engine) to electric drive trains in the years to come.
Q: Considering the expected economic & earnings growth, do you think the BSE Sensex and Nifty can be doubled from current levels by 2025?
The growth story of our country is still intact and we have had a major policy push towards building manufacturing capabilities like the production linked incentive (PLI) scheme and helping banks clean up their balance sheet and improve credit flows. Several companies in the NIFTY index have also been able to gain market share and come out stronger and more resilient post the pandemic. Meaningful corrections will be opportunities to buy as markets could reach the expected levels eventually.
Q: Metals sector was the biggest outperformer in FY22 so far with 44 percent gains. Do you think the rally can extend further in coming weeks or is it the time to be cautious on the segment?
Structural reduction in Chinese supplies will keep steel prices elevated, which will benefit the metals sector in 2 significant ways – operating and financial leverage, with significant margin expansion and debt reduction, led by strong realization and higher volumes. The ideal scenario would be a meaningful correction in the metal index. We have seen some divergence (on negative side) especially in the base metals and that may translate to some correction in stock prices as well. However such dips of 15-20 percent may provide good opportunities to buy the stocks at better valuations.
Q: What is your view on the PLI scheme announced for the sector? Will the chip shortage issue be a spoiler for auto sector in current festive season? Is it the time to add these stocks to portfolio?
The PLI scheme has a more long term vision, we expect the chip shortage issue to pose a near term blip but to be resolved by H2CY22 due to the increasing spends by the chip makers. Channel checks suggest that models with regular manufacturing are getting allocations of 60-70 percent of normal levels. Original equipment manufacturers (OEMs) are already preparing to launch newer designs with alternate chips that are available. Even though there could be a pulldown in Q3 due to the chip shortage, we expect the passenger vehicle (PV) demand momentum to sustain led by pent-up demand, strong order book and increased preference for personal mobility.
The OEM Incentive Scheme is applicable on battery electric vehicles (BEV) and hydrogen fuel cell vehicles (HFC) of all segments, which along with the Advanced Cell Chemistry (ACC) PLI scheme and FAME Scheme will make India a more attractive destination for EV related investments.
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