What exactly do you tell your customers? Is it too late now to take money off the table?
In the market, export-oriented companies will fare relatively better, especially companies that are service companies and are less impacted by the cost of raw materials. Thus, IT, pharmaceutical and chemical companies will suffer relatively less profit cuts and, in fact, may not suffer any profit cuts at all.
On the other hand, companies where the cost of inputs is very high, such as in automotive, valuations have deteriorated. Also companies like
will cope with the inlet pressure. Overall, this is how we approach the market, trying to explore areas where the impact on earnings is less.
What do you think of the overall valuations in the cement sector, as we are looking at an acquisition valued at around 81,361 crore rupees, or about $10.5 billion. This is the biggest acquisition ever by the Adanis and the biggest M&A deal ever in India. Do you think it will be a smooth transaction?
All the right boxes have been checked. It will be the biggest transaction ever in India and will create the second largest cement company. is still double the size of Ambuja plus after closing the transaction and the transaction price is very attractive. It is always likely to come up with what Ultratech is trading on. This leaves room for further reassessment of ACC and Ambuja.
Ambuja could depend on the structure of the agreement. Who will take on the debt would have some influence, but overall there will be greenfield or brownfield cement projects. The price of the deal is now around $170, which leaves plenty of room for upside as it now makes Adani the second largest player and also provides the group with a platform to go and acquire more. other much smaller regional cement plants. Overall, it is positive for both ACC and Ambuja.
What was so disappointing about earnings? Does he deserve the drop of about 5% he had on Friday?
Well, not really because their slippages were of little concern to the market, but that’s to be expected in a macro environment like this with rising inflation and the quarter also reflecting a certain amount of past lockdowns etc.
But SBI’s provision coverage ratio sits at over 90%, which is a phenomenally strong balance sheet. So there is no need to worry and SBI is extremely well placed and will do well as a stock and will probably hit the 600 mark in about a year.
There is no compulsion that says you have to trade or invest daily. In this type of market, should we ignore any type of trading or investment activity for the next few days?
I think you have raised a very valid point. Yes, because it is very difficult to change the outlook on individual stocks and sectors, stay on the sidelines in a market like this and generally be in a slightly higher level of cash and be invested away from rate sensitive makes sense.
For example, IT is still a very strong sector because the earnings growth was there, there is no debt and it is not interest rate sensitive. Global demand remains strong. We can stay put until some clarity is there and in between there will be a cement deal like this. This deal revalues the entire cement sector as the price of the deal is lower than where UltraTech is trading and this leaves enough on the table for significant investment in this sector. Paying attention to these would also help.
Globally, metal prices have fallen, but demand has not been interrupted. Prices for iron ore, copper and zinc are down and these stocks are also down. Is it a good time to buy a , a or a?
The amount of debt each company carries makes a big difference, because in a rising interest rate environment, highly leveraged companies like each of these companies see their terminal value revised downward.
has reduced its debt by nearly $1.5 billion over the past two years; Tata Steel reduced its debt. On the other hand, Vedanta still has a very high level of debt. So with metals being aware of their interest coverage ratios will make a very big difference and from that perspective Tata Steel and Hindalco are better. Thus, companies with less leveraged balance sheets will be helpful.
Has the pessimism around FMCG and other consumer names reached a fever pitch? Would you now consider buying one of these?
Some of them clearly did. You have to be more specific because
for example, to start new activities – clothes, women’s handbags. Jewelry, of course, is still doing very well, with growth of almost 25% and that’s a pretty good number. All of these new ventures that the company kind of got into and they’ve identified all of the Tier II, Tier II, and Tier IV cities that they want to expand into. They will not commit capital to new areas. So this business is going to grow over the next three to four years and show pretty noticeable profit growth. We have to be selective about this.
Are the banks going to be the main beneficiaries of this recovery in capex?
In effect. Valuations are on the banks’ side. In all other high valuation sectors, valuations have deteriorated in the recent correction and over the last year, year and a half, two years, they have underperformed. From mid-sized banks to most large private banks, valuations have kind of stayed where they are and we will now have to see loan growth resume to justify their valuations.
Now they are not at a premium and as demand picks up that will translate into higher loan growth.
was talking about 10% to 12% loan growth, which is a very good number compared to the last three years. So, as this loan growth number accelerates due to capital expenditures, working capital as well as consumer demand, banks will start to perform well.
Christopher Wood has IT stocks in his portfolio and he thinks there is room for a downgrade. We’ve seen underperforming computer packs recently. Would you be okay with that?
IT has quite clearly underperformed. Stocks are down 20-30% in frontline names,
, , , all those names and even after all that revenue growth is around 13% to 15%. Now, if this trend continues as the estimates indicate, these companies will double in size in about three to four years.
Considering twice the size, the valuation will look much more attractive than it does today. The market therefore rewards growth. With the recent weakness, these stocks have come off and IT is a very important sector from an Indian perspective. If I was managing an emerging markets portfolio, I would buy different types of IT stocks, but if I was managing an Indian portfolio, then Indian IT services become very important. So, from the perspective of an Indian portfolio manager, IT is an important sector to continue to be exposed to.