What is going on with some of these infra plays? shot up 9% and the entire pack was charged up. Where do you see opportunities within infra? Are you going to touch this segment at all?
Capital goods and infrastructure are typically put in the same bracket. These segments have been positive and most of the stocks have been doing well with the larger companies like
, moving to new highs.
The stock which is the largest in the infra capital good segment is L&T. It has been an intriguing underperformer and surprise to many for a long time. The valuations are much below historical levels and its discount to the market is very high.
That is one stock which could be on the lookout and then there are smaller capital goods companies. On the infra side, many of the pure construction companies have problems with cash flows, high debt and aggressive bidding. There was a time when order flows used to determine how the stock would do. Winning huge orders used to lead to stock prices moving up. That is no longer the case and rightly so.
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One must go for companies which are more focussed on getting orders profitably and not extending their balance sheets too much. I have been tracking for a long time and subsequent of last quarter results, I thought there is a chance that NCC could start doing well. It is still nearer new 52-week lows rather than highs. They also announced a Rs 2 dividend which is a good dividend yield. That is something which we are looking for in the relatively smaller construction space.
After the AGM takeaways, is there merit in adding positions to ?
Smart talking is a part of many of the smartest of the Tata Group companies. We must be very selective about which companies we buy. Huge capex announcements might excite analysts but they are not very exciting for me per se, simply because we have seen in the past there is so much intervention in energy pricing in India that it is tough for utility companies to make money. They are diversifying into some segments like e-charging, metering etc. But that will remain a very small part of the business for a very long period of time.
They need to be valued as a utility only and utility companies in India traditionally have had issues related to recovery and policy changes. So there is only so much valuation we can give. After the huge move which Tata Power has seen over the last couple of years, it is tough to find value at current prices.
What about M&M with this investment from the British International Investment (BII). We understand the valuation of $5.9-9.1 billion is based on their $250 million investment. What are you looking at in terms of net value accretion to M&M shareholders?
Lot of these investments happen in subsidiaries. I think this is a positive development, but I do not think people should start ascribing value immediately to something which will start generating bigger revenues and profits a few years down the line.
M&M is one of our key holdings and I am quite positive on it, based on fundamental performance of its current businesses. This is only an incremental positive where it reduces the cash needs of the parent because you get a partner and there is a possibility that other people might put in money and to that extent it is positive.
The fact that they are getting serious on the EV business is also a big positive because eventually we need to see how the cost dynamics work out on EVs longer term globally, as more and more resources are required for higher EV penetration. But on a net basis, seriousness on this front is positive, I remain positive on M&M but not just on the basis of this info.
While the market has picked up autos with it, it has left IT behind. is going to report its numbers today. While it is all known what is to be anticipated, will the haydays of IT be coming back anytime soon?
The problem with management commentary of IT companies is that it always remains bullish.We need to evaluate the sector and stocks ourselves. It depends on what the base case is. If the base case is that the significant Fed tightening etc will lead to a brief period of recession to curtail inflation, then the demand for these companies is going to get impacted. Cost pressures have been increasing because of high attrition, wage pressure being there and now the companies have to spend on travel related to sales, marketing etc.
I would be still cautious despite the corrections in these companies over the last few months. I would still think that the time to buy them could be some time off.
What could HDFC-HDFC Bank merger mean for some of the smaller players?
was already a very big bank and to that extent this merger does not change the dynamics. If this had happened 10 years back, may be yes; but now, its impact is limited more to the shareholders and stakeholders in HDFC Bank, HDFC rather than having an impact on overall dynamics.
However, the merger is more out of necessity now because the housing finance business was coming under pressure as everyone is into housing finance and NBFCs or housing finance companies do not have the low-cost deposit base which banks have.
So, I think it changes the dynamics for the standalone housing finance companies which are in the market where the valuations will remain under pressure.
You mentioned capital goods and how infra is looking interesting, how would you rate that with cement? For the last seven, eight years, cement has been the best play in infra. What would be your view now on that?
Cement dynamics has changed given that some sort of discipline which was there in terms of capacity addition seems to have broken down after the Holcim deal. All players are now aggressively pursuing market share and that typically is not good in a commodity industry because it leads to pricing pressure and as such lesser profit growth.
Volume growth will come back for them given the overall infra push, housing doing well etc, but we need to find levels to buy, and I think those levels could be much lower than the current levels because in the next couple of quarters, we will see severe profit pressure and that could ultimately lead to stocks correcting further and at that time we could look for opportunities.