Deepak Shenoy, Founder, Capital Mind, says: “My shopping list still consists of a lot more manufacturing businesses, people who make stuff in India. That is still going to get the maximum fillip, both from the PLI changes in the last year and also from relatively low tax rates plus import duties that have been imposed on imported goods in general which is about 10%. But maximum import substitution through local manufacturing is going to be the biggest beneficiary.”
Is it going to be as wonderful as we think it is going to be because there will be a lot of those unknowns as well? We will have a big election event too.
What is life without a little unknown? You cannot have a straight path to everything and so there is going to be a non-straight path to glory. I hope next year is going to be both volatile but exciting enough for us to discover great businesses.
I am sure you are getting a lot of flows and you would not want to buy by chasing stock prices. You would welcome volatility, wouldn’t you? How is the buying list looking like right now? Are you shopping in PSUs because that seemed to have come alive in almost like the entire basket; PSU banks, capital goods, mining, energy, everything is gaining?
Absolutely. Even Coal India is up some crazy percent in the last year. But much of this has come from the re-rating of PSUs which has happened due to a number of factors in the power sector. For instance, we have had a re-rating because the power economics around the lending businesses in power has changed because of a lot of policies in the last few years and markets have come to realise that.
I think this will also happen in a bunch of other businesses where government control has not necessarily meant doing bad things. However, my shopping list still consists of a lot more manufacturing businesses, people who make stuff in India. That is still going to get the maximum fillip, both from the PLI changes in the last year and also from relatively low tax rates plus import duties that have been imposed on imported goods in general which is about 10%.
But maximum import substitution through local manufacturing is going to be the biggest beneficiary. But then the elections come and that might change things. So we have to be watchful for any changes in policy. Beyond that, I would say I’m still quite excited about defence and railways. We have a long way to go here and we are still focusing on some of those products.
Travel and tourism remains one of our focus areas. Some of the stocks we bought are in the tech sector in those areas. But overall, tourism will continue to do well. As you can see, this is the holiday season. You cannot find a place to go anywhere without paying exorbitant rates. But inflation adjusted over 10 years, it is not so much. So all these businesses will do well in the coming year.
You spoke about the travel and tourism industry and why it appears to be in a very sweet spot for growth. Do you also own Indigo? If yes, I am confused why the stock is trading at 11 time forward? It is virtually a monopoly in the space with good growth, the load factors are not coming down, but still for a Rs 8,000 crore kind of profit making potential trades at 95,000 odd. Is it cheap or is it fully valued?
Fair. This is one of those places where I do not like to invest. Whenever there is a profit pool in airlines, and this is probably worldwide, somebody comes and ruins the economics. Somebody will come as a new player, undercut prices, because the point is to fill planes. You have to fill them otherwise you do not make a profit. If somebody else comes in and undercuts, they just go on a war footing to compete. Then everybody loses money. This happens every four or five years. After Jet, there was Indigo that started and then a bunch of airlines came. There was Kingfisher. A lot of these players have gone bust along the way. They were all leaders and winners at some point in time.
And I think that is one of the reasons why IndiGo share price doesn’t show any exuberance and right now crude prices are benign. Whenever there is a jump in crude prices, you will see IndiGo start to make losses. We have seen this in the past. I am not saying this just because I think so, but every time in the past, when you had a spike in crude prices, it almost directly affected the bottom line for IndiGo. So given the volatility, the market prices them at a lower number.
So the Rs 8,000 crore you speak about can quickly become minus Rs 2,000 crore in some quarter. You can balance that out and then it actually normalises to these extremes. It is trading at probably 25 to 30 times earnings which is where markets have priced it traditionally. I do not think this is an undervalued stock but I do not like the opportunity because external based volatility seems to happen all the time in the airline industry.
Where within the rest of the discretionary spend basket are you bullish? I mean, across the spectrum, right from real estate to shoes.
Probably shoes are better than real estate; but to be fair, there is visibility in the shoes and consumer demand sector and there are a lot more brands. In real estate, in the near term, we will see a lot more. We will see a lot of activity and the way the accounting goes, the results for real estate companies will probably be good for next year. If interest rates increase, then buyers will start compressing.
Did you manage to look at this latest debut on the primary market – Protean e-Gov Technologies? It saw a very muted listing this morning after a 24 time subscription. Have you looked at this one earlier known as NSDL E-Governance?
We use them, but we do not subscribe to IPOs. As a portfolio management company, we cannot. But one of the things over here is to wait for a quarter to see how results pan out. This is going to be a slowish growth company in general and not because of anything else because of the regulatory interface and the way things are after you reach a certain scale, you will only grow either by increasing prices or by the growth rate of the number of companies in India which is relatively low percentages, probably high single digit percentages.
I would say it is not a very high growth company and so do not want to pay too much for it. But probably in the longer term, it will be a good dividend player. We will have to wait and watch for results and to see if any things have changed after their results.
I do not know when they will announce it, to be fair. It may take another quarter, but we will take a look after that. Usually the quarter after the IPO gives us the best. Pre-IPO or the IPO over supply or over demand does not seem to reflect in listings as Mama Earth also pointed out. There were seven times oversubscribed or four or five times oversubscribed, but the market price remained the same. So that has not been a useful indicator of what will happen on listing day.
But you are a market insider. You know what parts of the market infrastructure are doing very well. Protean is that side of the market where the government wants to do a lot of infrastructure creation on the e-side. I will come to the other side of the infrastructure, CDSL, NSDL, some of the high growth technology backed brokerages. Would you like to play that financialisation and then the new gen investor embracing the market in your portfolio?
In fact, we have some of the RTAs, the registrar and travel agent listed players, we have an exchange. We do not have CDSL just yet. CDSL data was showing a little bit of slowing down of growth rate of accounts. So they will have to make more money on transactions. The growth in F&O and the options, the craziness that has been happening in the markets will benefit the brokers and exchanges first. It will then downstream onto RTAs and perhaps later on to companies like CDSL and NSDL.
I do not know if NSDL is listed yet, but we typically do. We have had a position with CDSL in the past, but right now we are focusing on the other players. We will build more. Market infrastructure is just going to be huge going forward given that everybody in the regulated space, whether it is SEBI, the government or even RBI wants more and more players and debt offerings also to be listed. For exchanges to be the primary role for intermediating transactions, this is going to be a very solid thing for everyone in the field. In the next 10 years, this field itself will grow 10x. So we should participate. We have a little bit of a foot in the door, not all of it.