Something that catches your eye in the IPO market? More than 60 companies have gone public, but attention has been drawn to three or four names – Paytm, Zomato, PolicyBazaar and Nykaa. There are many other companies.
Yes. There are plenty of other potentially interesting companies and we’ve been keeping an eye out for some of them that benefit from the China plus strategy. I refer to companies in the API segment, CRAMS in the chemical segment. Two of them are in the pharmaceutical segment. These are the ones that are likely to show relatively better performance.
These are companies like Supriya, Ami Organics, Anupam Rasayan, Rossari Biotech and even Laxmi Organics. They are trading a bit expensive at the moment but these companies have a clear roadmap for their business and are not affected by commodity prices at this point and have a clear formula to pass on the rising cost of commodities on their customers, as their customers are usually large systems houses that bring their API products to formulation processes.
I like some of these companies which are basically still very strong propositions but price wise they are a bit pricey. It is entirely possible that one should watch these companies during a correction. In the event of a price correction accompanied by a weather correction, one could invest in these companies for the long term. So the opportunity is there, but you have to buy selectively.
The one stock everyone is going to be looking for, especially given its outperformance over the past few months, is Tech Mahindra. What do you think of their newest acquisition, a conscious diversification into digital insurance?
Tech Mahindra has found the formula for success in acquiring businesses and making them more commercially viable and successful. When it comes to this particular acquisition, the most important fact is that the InsurTech business they acquired contains a talent pool of around 700+ people, which could eventually lead to a huge increase in the most bet. high, although currently it can only add about 1% or more.
The company’s revenue could potentially increase further, largely because the majority of business services globally are being disrupted and technology is essentially taking over all of those services. InsurTech is one of those areas where the demand is likely to reduce costs for the ultimate insurer and at the same time make business profitable for insurance companies.
Overall, put together, technology is a front and the insurance industry is the backend. If the right formula is found, business could succeed faster and this is where this acquisition should help Tech Mahindra create a niche. More will be needed from the company in the commentary on how it proposes to improve the environment for it with this type of acquisition and what type of advantage it would have a year later. But it seems like a reasonably confident and positive acquisition given that this particular area demands a greater amount of tech play at this point.
Motown seems to be pretty busy lately. The list has been limited to Tata Motors and M&M for most of last year. Can we expand this list to new names and have exposure to two-wheelers now?
The important thing is that the majority of the problems were around the supply of semiconductor chips. Now that supply is back to normal and trading conditions look a bit more favorable than before for most automakers. If I have to look at companies that might have a relatively stable business orientation, one of them might be the commercial vehicle section within the automotive space. On the one hand the government is spending a lot on infrastructure which I think would probably increase the movement of goods and services in the country and at the same time a significant portion of the infrastructure could pass through Gati Shakti Yojana in the next two-three years. So, directional utility vehicles could possibly see higher demand.
At the same time, in fiscal year 2022 and fiscal year 2022-2023, we are likely to see the impact of the scrapping policy announced by the government last year. In my view, the scrapping policy has the potential to create sustained demand over the next five years for the commercial vehicle segment. So it’s an area that looks reasonably strong, reasonably strong and India as a country with greater opportunities for commercial vehicles. So, if one invests in auto stocks, the CV segment must be the first choice.
The second segment would be the two-wheeler and passenger vehicle segments, as electric vehicles have been making steady inroads in these segments. We’ve already seen about a million EVs sold, with China controlling 40% of that million, and about 50% of the two-wheelers sold in China today are EVs. Given this situation, I wouldn’t be surprised to see FY2022-2023 see a comeback for many two-wheeler companies with electric vehicles driving the show for them.
How would you play rising crude oil prices with equity markets?
Clearly, the rise in crude oil prices is not very good news. This will likely lead to higher commodity prices, which, in turn, will increase inflationary pressure in global markets. A reality check would show that the prices of all commodities and products are likely to rise with rising crude oil inflation.
The crude oil supply situation is not really predictable, because while the oil producing countries have pledged not to let the prices increase wildly, at the same time they are not increasing production at the speed as expected. Thus, the situation is going to be slightly more frightening regarding the outlook for inflation.
At this time, we do not have any particular views on the upstream or downstream companies. New money will not enter fossil fuels due to ESG concerns. One cannot be sure to buy these stocks.
What about Yes Bank? It is available at Rs 14; most of their exposure to DHL, ADA Group is settling. Could be a turnaround candidate for 2022?
It would be an interesting play to watch as the bank has done some good things. They got rid of areas where they were struggling, including selling some of the businesses. So they withdrew from those rooms where they were not effective. At the same time, the recovery of non-performing assets is something that is fundamentally very important for the revival of the company’s balance sheet.
An investor would look at the growth of credit drawdown. Whether all of these implemented corrective measures would lead to higher balance sheet growth remains to be seen. At some point, this bank, after stabilizing, could become a prime target for acquisition. I don’t know if Yes Bank deserves to be a standalone bank. I think after cleaning up all the balance sheets and getting the business back into revival mode, this could be an opportunity for someone to acquire this bank and that’s where you have to look at the outlook.