Are there more gains to be made in metals for the next one year or would you say the best of the move is already behind us given the recovery from the March 2020 lows?
There are two kinds of gains that typically happen when you see some of these stocks. One is the full rerating that happens as far as the valuation is concerned and then comes the future growth. There is a combination of both these factors. In the first leg, when these stocks were trading at rock bottom valuations, they got rerated. Now onwards, it is going to be a function of what kind of growth numbers they are going to show going ahead into the future asset. If you go by the way the economy has rebounded and the way China has come back and the demand for metals has grown, it will be a growth-oriented story but the rerating has already happened.
What about the consumption theme?
Consumption demand is huge in India. It is going to be one of the fastest growing economies next year. The savings growth is immense. There is this diaspora which has aspirational value and which wants to upgrade their lifestyle. So, consumption is going to be a big story now.
If you are investing for the next couple of months, surely there is uncertainty because with the second Covid wave, one does not know what the government will do although the government has resisted another lockdown. But if it continues at this rate, a limited lockdown may be necessary. The retail facing businesses which involve a lot of density of population, could face pressure in case of a limited lockdown. But for the next three-four years, consumption is a big story and India has always been a consumption-led economy.
Consumption has come back strongly but has yet been a little subdued. Essentially it has been investment which has driven growth over the last six-eight months, but the long term play in India is consumption.
Hospitality, aviation or for that matter multiplexes have recovered back to their pre Covid levels but just when you thought things were easing off, there’s a spanner in the works because of a spike in fresh cases?
Absolutely. At least till the time Covid is behind us, all stocks which involve density of population converging at particular places could come under pressure from time to time.
If you take aviation, even in the best of times, the aviation business does not enjoy great economics. It has been more of a trading play rather than an investment play so we have never believed in looking at that sector.
Even the hospitality industry, because of the capital intensive nature of that sector, has never given enough adequate shareholder returns over the years. It has been another sector which has been kept aside. Multiplexes is, however, a different game. It is a sector which I believe continues to enjoy a lot of potential. But it will be under pressure in the short term because a country like India has very minimal options as far as entertainment is concerned. In that sense, it is a sector which will always be in demand.
If you get deep corrections and you are ready to look for the next few years, then one can invest there but I think it is too early to get into them right now.
What is the outlook on the entire energy basket? Would you place your bets with eyes closed long term for
? What about ONGC as well as some of the OMCs?As far as the whole energy basket is concerned, from a longer-term perspective, Reliance looks good primarily because it is looking to unlock value among its three main business segments and that is where we think an upside would be available. We do not like any of the government OMCs because they are not the kind of businesses which have been able to create sustainable long term wealth for investors. They are cyclical plays and that is not the philosophy on which we work.
Within the energy basket, we think the gas and especially the city gas distribution segment has great franchises. They have hitherto been monopolistic but even after the opening up of the sector, it will retain quasi monopolistic parameters. So whether it is
or , they are extremely well run companies.India is focussing on gas as a clean fuel to increase its weightage as a share of the overall energy basket. All these companies’ valuations are within reasonable parameters and there is a substantial upside to be made by investing in some of these companies.
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March 27, 2021 at 10:31AM
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Consumption a long-term play; metals a growth story: Nitin Raheja - Economic Times
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