When you say play with the top three banks and stick with them, are you talking about public sector banks or private sector banks? Look at the feedback we got from SBI as opposed to say the whole HDFC group?
Young people look to the immediate future and say to themselves: have I made money in three months? Look at the guys who put money into every other PSU bank in the last five years, 10 years, 20 years. What happened to these banks? Is there a future? SBI was an outlier for a while and I honestly say it’s an outlier because everyone else pales in comparison. They have subsidiaries, they are government bankers. I think it is unfair to compare them to a PNB or a Bank of Baroda, as SBI has traditionally been the banker to the government. They used to hold the government treasure chest in all district headquarters. So they have a really big advantage in terms of size, scale and everything put together. So I think SBI is an outlier, but like the rest of the PSU banks, you’re kidding me!
I keep asking everyone this question, do you have an account with any of these other PSU banks or are you going to open a new account with these banks? If you are not going to open an account with these banks or do business with them, do they have a future? I suppose not. They won’t have a future and they make trade bets at best.
Also read: Why is the upsell not applicable to Indian investors?
The talent pool they work with is much lower than in the private sector right now. If I’m a corporate banker why would I go to a bank that doesn’t have stock options, just gives me a salary, puts me in the middle of nowhere as a trainee agent when I can to sit in Mumbai or Delhi with my family in an Axis Bank or HDFC Bank? So if they can’t attract talent, you can’t get an organization. I guess I use it for trading but never invest in these stocks. Think of BSNL and MTNL, what they were then and what they are today! You will get the answer.
Where are you on the metal pack because the street is divided?
I was a commodity addict. I continue to hold substantial investments in commodities. I still hold substantial investments in non-ferrous metals at present and recommend it as well. I have almost no investment in ferrous metal stocks because I believe they are being hit hard by the coal situation around the world and it is not improving. Coal is at historic highs right now, Coal India isn’t doing wonders here either. So I think ferrous has a bit of a problem on the cost side, but maybe not on the demand side. Non-ferrous metals are the safest way to play with better companies.
I am convinced that the commodity cycle is not over and the difference this time is that all companies are mostly deleveraged. They are not sitting on four or five times leverage and constantly paying down debt. Even the worst of the lot, in which I have a stake, is Vedanta and it is a producer of composite raw materials. You can’t get a better deal than Vedanta. It contains aluminum, silver, zinc and even oil. So, if one is betting on the theme of the economy, this is the game to play.
There may be a governance overhang on the company and that’s why the valuation is bad or continues to be bad, but the fact that the commodity cycle isn’t going to go away and the more expensive money gets, the more it is difficult for anyone to make investments. develop new mines and do something to change the supply cycle.
So yes, we will see volatility in commodity prices, but over a three to five year cycle, we are very safe in most companies because they are now fully deleveraged and returning money to shareholders.
Remember TCS, love the money that comes back to shareholders. Remember the ITC. It’s a company that doesn’t move and that’s the beauty. It’s an action that doesn’t give money back to shareholders like a Nalco or a Vedanta would. So I think the commodities game is here to stay. We will reap a lot of dividends over the next five to seven years. Prices can fluctuate, but it is a very stable place to play and even today one can enter at a relatively cheaper price compared to any other segment of the market.
Changing the perception of old raw materials. It has done wonders not only in India but all over the world. Rio Tinto has done wonders, Exxonmobil and Glencore have done wonders in foreign markets. We have our own Nalcos and the other shares and a disclosure we have stakes in all the shares. I think commodities are always a game and if India has to do what it has to do. For a growth of 8 to 10%, you need basic products, there is no way to go there.
The price of Phillip Morris and other commodities or cigarette stocks are at an all-time high. Only in India are cigarette manufacturers not re-evaluated. Will their time come?
When will he come? I don’t know if I’ll still be around to see it but if you’re around, just raise a flag for me.