Fundamentals are likely to look up and it is going to be a multi-year cycle from here to the next three to five years, says Anshul Saigal, Chief Investment Officer, Kotak Portfolio Management Services, in an interview with ETNOW. Saigal is bullish on real estate, infra and corporate banks.
Last two months, the election verdict narrative and opinions and exit polls kept the market busy. Now that the government has been formed and cabinet portfolio composition is out, what will keep market participants busy now? The budget is only six weeks away?
Warren Buffett says that in the short term, the markets are a voting machine and in the long term, they are a weighing machine. What he means by that is, it is these small incidents and small events which really keep markets excited in the short term but the reality for the long term is fundamentals. Unless one believes that in the long term, fundamentals are improving, equities is not the place to be in. And if you do believe that the fundamentals are going to get any worse than even at this time, it makes sense to be out of equities.
We are on the other camp. We do believe that fundamentals are likely to look up and it is going to be a multi-year cycle from here to the next three to five years. For that reason, equities is the place to be in and within equities, generally it is valuations which drive prices in the long term. If you have quality businesses trading at reasonable valuations where growth is going to pick up over the next three years, you should be in those pockets.
One area where we find a lot of interest and where this government is going to have a lot of tailwind is infrastructure. In the last two to three years, infrastructure has grown in a secular manner. It is not reflected in prices because prices have halved in the last year and so in infrastructure companies, one could see quite an interesting move over the next three to five years.
Also bear in mind, that it many companies have gone out of business in this space because of weak balance sheets. The companies that remain, will be the ones that will be getting all the benefits of tailwinds in the space. If you want to bet on this government and then policies of this government this is one area to bet on.
Since you are talking about infrastructure, NCC was in the news on Friday after Jagan cancelled all tenders. The news was taken pretty heavily by not just NCC but most of the players in that region.
Anshul Saigal: If that is a trend, it will have long-term consequences in the sense that the revenue potential of these companies is going to see a downward trend in the long term versus expectations. Then clearly their prices will get adjusted accordingly, particularly in the case of NCC. They reportedly got a large proportion of their orders from Andhra Pradesh over the last six months and now that those orders are cancelled, the revenue potential of the company also stands to take a hit and that has to reflect in prices.
But if these companies are strong enough to get orders elsewhere and build their order books over this period or even in Andhra, once the orders are cancelled and they go for rebidding, these companies get these orders at favourable prices. Then, clearly the revenue trajectory will again come back and the prices will get readjusted. So, this may be an interim phenomenon but given the uncertainty, the interim correction was called for.
What are some of the themes you would look at, the specific stocks? Have you started looking for fresh investment ideas?
Yes, of course every day, we are looking for ideas and given that last year, the broader markets have corrected quite meaningfully, we do find that expectations have lowered and the performance of companies versus expectations are really not that bad. So, one is witnessing quite interesting risk reward ratios in pockets and finding opportunities.
Other than the infrastructure space, the real estate space is also quite interesting. We are coming off a 4-5-year period of weakness in that space and we do anticipate that that space is going to shift from being a price-oriented to a volume-oriented space, wherein people will not really buy into real estate or real estate companies will not show price increases in terms of their property prices but will see volume growth henceforth and that will be reflected in valuations.
We already see some companies trading at six to seven times price to book, while there are others which are quality businesses but have really not caught on to the trend yet and trade at one time book to one to two times book. Those kinds of disparities and valuations could get corrected.
I have spoken earlier about corporate banks which even a year ago looked quite an interesting bet to take over the next two-three-year period, because valuations over there look quite interesting and the NPA cycle seems to be turning.
One has to look for these kinds of special situations where you identify opportunities which may be on the mend in terms of growth but valuations do not reflect that and I can with experience and having gone through a lot of such opportunities in the small and midcap space, can tell you that these kinds of opportunities are widely available in the small and midcap space at this time, given the correction last year.
One needs to do cherry-picking in telecom sector. There have been two large right issues, capital infusion has been strong, Vodafone-Idea is not the best of the performer but Bharti is now at Rs 340. India cannot survive without telecom; prices cannot go lower. The Reliance disruption is over and gradually things should improve for telecom.
I could not actually agree with you more. I do not know if the ARPU increases are going to play out immediately or they are going to play out two quarters, three quarters hence. But it looks likely that falling ARPUs are behind us now. If you saw the ARPU numbers for the previous quarter, it was evident that for all players particularly the two incumbent players, Bharti and Vodafone saw reversal in trajectory.
Of course, that was for other reasons which is that they were weeding out the lower paying subscribers and raising ARPUs in that category which led to an overall ARPU increase. But if this trend continues, then let me give you some proportion. The proportion is that many of these companies had ARPUs in the range of Rs 170 to Rs 180 till about three years ago. That number today is down to Rs 100. That tells us that the paying capacity oRead More – Source