Aveek Mitra, Founder & CEO, Aveksat Financial Advisory, says “is really constructive on renewables and also on LNG and PNG. These are the areas where we are trying to look for investments, but not directly into those companies but rather in some suppliers which are in the private space and supplying and making money out of that, rather than directly looking into it. If somebody is supplying a meter for smart metering, or somebody is supplying turbines for a wind project or things like that, those are the areas we are keen on. But specifically, the theme is very large.
I want to start our chat with something which is becoming talk of the town right now. Elevated valuations of some PSUs. Have you analysed PSUs? Have you invested in PSUs? Are you booking out of any of them? Today Kotak came out with a note cautioning that most parts of PSUs are getting expensive.
Aveek Mitra: Unfortunately, we missed the rally. So we do not want to say that we have identified this rally early. At the same time, we really do not know on this particular matter what is really going on. But on the defence side, those PSUs are looking good. We are not invested nor are we recommending it. Maybe this rally will continue for some time, we never know. I have been told that a mutual fund is coming out with PSU funds or something like that.
Yes, that is correct. you are referring to Quant. They are launching a PSU fund. I want to talk to you about one particular part of PSU. Yesterday, Prime Minister Modi inaugurated it and announced $70 billion worth of investment in the Indian energy space. I want to talk about OMCs versus upstream companies. On which side do you see more value? Out of the three energy pockets, where do you see opportunity here in India?
Aveek Mitra: We are really constructive on renewables and also on LNG and PNG. These are the areas where we are trying to look for investments, but not directly into those companies and to some suppliers, to some guys who are in the private space and supplying and making money out of that, rather than directly looking into it. For example, if somebody is supplying meter for smart metering, or say somebody is supplying turbines for a wind project or things like that. So those are the areas we are keen on.
But specifically, the theme is very large. Internationally, we are committed to go for renewables. The Indian government is very, very proactive and very, very forthcoming on making this a very big priority. Keeping that in mind, I think this is a very long term story to continue. But we are not looking into the kind of companies which are actually doing it. We are looking into the peripheries of it, which will benefit out of this transition.
I am giving you a disclosure, we are not discussing your stock picks or anything, but want to understand which companies could be the periphery companies you are referring to?
Aveek Mitra: For a company like Inox Wind Energy or Suzlon or Genus Power Company, companies which may have some kind of potential, can really do well. So there may be Sterling and Wilson. I am just giving names. These are neither recommendations nor our investments. But these are names just to give an idea about how we are looking into this sector.
What is your take on the PSU banks versus private banks? Tomorrow’s policy is expected to be a dovish policy because the borrowing number in the Budget was lower, the deficit number was lower and so one is getting a sense. How do you play lenders? Do you have any lenders in your portfolios?
Aveek Mitra: No, the last time we chatted also, we said that we are not very constructive on the banking space, but we have invested in one company which was where the key promoters are investing money. It is a small bank selling at a cheap valuation. So we thought that we will have it and keep it within our radar. Now coming to this private bank versus government bank kind of a debate, the entire banking space is having a problem of basically garnering deposits at a reasonable cost, because as you have seen, credit is growing at a rate of 16% and deposit growth is at about 13%.
So people are investing in mutual funds and stocks instead of putting in banks. In this kind of a situation, this is one side of a problem. The other side of a problem is banks have to chase each other for a pool of clients for whom they are finding it credit worthy. We may be having a large pool of credit taking people, but at the time of giving the credit, the kind of CIBIL score or the kind of income criteria which they look for is getting a little tougher for them.
So it will become a little complex to really find a company to invest in. PSU versus private, we do not have a debate because there is a fantastic improvement on the PSU bank’s balance sheet and PSU’s bank working over the last decade since this new government has come in. So that actually can really deserve a re-rating of these PSU banks.
Also the PSU banks and the kind of continuity of people there, gives a kind of stability to these banks’ performance and workings. If I go to buy a bank, I will buy a PSU bank rather than a private bank.
Fair point. So you would buy a PSU bank versus something else right now. What have you added in your portfolio last? What are you researching closely right now or are you trimming?
Aveek Mitra: We have not trimmed anything since the time we last talked. But whatever incremental money we have got, we have invested into two companies. One is in actually selling footwears and they are a demerged entity from an earlier older entity. We found that their growth is quite reasonable and they are selling at a cheaper valuation.
The second company, we have invested in, is a real estate company based out of Mumbai who have also come out with a good set of results and have a projection of doubling their gross developmental value in next three years and then doubling it further for the coming three years. So we find that Mumbai is the biggest market and on any parameters like per square feet to number of projects launched, to absorption rate and things like that.
So we have invested in that real estate company. These are the two new investments which we have made out of the incremental money we have received. But we have not trimmed any position, we want to ride the trend. So till the time this party lasts, we want to be there.
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