Do you think from an investment angle, the PSU theme merits a relook or should one keep it in the trading portfolio?
Selectively some value is emerging in the PSU pockets. SBI Bank is the only bank which has gained market share in the last five years in the PSU pack. Their market share in deposits has gone up from 22 to 24%, their share in advances has gone from 19% to almost 21.5%. The estimates on 1% of the book going for restructuring looks realistic. All the subsidiaries are doing well. SBI Cards has 18% market share, SBI Life Insurance 18-19% ROE/EV, SBI Mutual Fund is number one in the AMC industry. All subsidiaries are doing well and it is available probably at one or less than one book value. That can surprise assuming that the credit cost does not go haywire and they stick to their guidance.
BPCL again is one of only refineries where the marketing to refining ratio is more. So if you see the refining capacity, the last quarter numbers is 5.6 MTPA versus marketing of almost 8 MTPA, a great marketing infrastructure and the best per pump per sales per month productivity. The Bina Refinery has stabilised. It is a complex refinery and their gas JVs continue to do well. This is one asset which deserves a far better valuation than what it is trading at right now.
One can selectively pick PSUs like SBI, BPCL. Some of the better run PSUs can be looked at but don’t buy the entire pack.
The Adani Group market cap has more than doubled in 2020. It has managed to beat M&M, UltraTech, HDFC Bank and Adani Green and the market cap now on a year to date basis stands at Rs 1.3 lakh crore. What is your view on the Adani Group?
Gurmeet Chadha: There are two stocks people get confused about — Tesla abroad and Adani Green in India. I honestly have not made much sense of it other than the fact that they are almost 60% of the targeted renewable energy capacity. It is like 14 GW against the targeted 25 and obviously there have been a slew of investments there.
One stock which I still like in the group is Adani Ports. It has graduated into a very integrated multimodal logistic player. The cargo volume share continues to pick up. The Krishnapatnam Port is value accretive. The ocean trades have been very steady and that is in my radar. But other than that, I do not have much view on the Adani pack as such.
Sanofi and GSK have delayed their vaccine as results have fallen short. There are optimistic views of course that we will start to see vaccine rollout by early next year but a lot is hinging on positive sentiment on the back of that.
Right now, it makes sense to avoid momentum plays, relook at asset allocations and go for areas where there is a margin of safety in terms of growth so that you are not in for some rude shocks.
And does that margin of safety then primarily include names like the IT majors or would you be open to fishing in the broader markets?
The tech up cycle will continue in my view. The digital transformation has got accelerated because of the pandemic. There was an Infosys analyst meet where Mr Nilekani talked about there being a $500-billion opportunity and there would be significant gains. So look at the deal pipeline of the top two-three names.
Both cloud migration and maintenance are big opportunities. There are three-four broad trends we are seeing which is consumerisation of user experience, cloud, AI and analytics, cyber security and few others. The recovery in the BFSI vertical has surprised a lot of people. Our top IT picks remain Infy, TCS, HCL and Tech Mahindra. We do not want to go to level 2 and there are some spaces in the building material space which we are seeing the low interest rates and pick up in housing and economic activity aiding the growth of something like Kajaria, Polycab. We are seeing some margin of safety there as well.
What do you make of the ownership rejig taking place at the TVS Group?
On the face of it, looks fine to me but at 14,500 Nifty, you let it play out rather than betting on it. One concern with TVS was over the rising debt sometime back which with the recovery in the two-wheeler space, is looking okay. Our preference in two-wheelers remains Hero MotoCorp with more than 50% sale coming from rural areas.
TVS has recovered its market share in the executive segment. In the sport segment it has launched Xtreme and one more variant. It has grown market share in the scooter segment with the launch of Destini in the 125 cc segment. The sale of spares surprised me in Q2. It is a great play on rural recovery and there will be some differentiation in the two- wheeler names. There are great return ratios and it is virtually debt free. So Hero in the two-wheeler pack if I were to put incremental money to work.
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