Lack of GST cut in autos can really be a dampener because the market is hoping that something of this sort may come or maybe a scrappage policy could be announced soon, says Arun Thukral, MD& CEO, Axis Securities. Excerpts from an interview with ETNOW.
The GST meeting is on September 20. Some of the key states may oppose a cut in GST rate for the auto sector. Given that the auto sector is pinning its hopes on a rate cut, would this come as a bit of a disappointment?
Yes. Auto is going through a cyclical slowdown and this may be one of the triggers for the reversal because otherwise if you look at the lack of funds or the NBFC problem or the cost of ownership and whatever other recent problems we have seen, the auto sector has not been doing well and the production cuts are taking place. This could have been a great news and let us keep the fingers crossed.
This can be really a dampener because the market is hoping that something of this sort may come or maybe a scrappage could be announced soon.
What is your outlook on the NBFC space? Do you believe that they are still not out of the woods or would you pick out select names within the sector?
Obviously select names. Marquee names like Bajaj Finance and companies where a good ALM is in place and which we have seen perform over the years. Barring one or two, the NBFC sector is still not out of the woods. A lot of paper is due for renewal in the next few months and we have to see whether they get the funding or whether the rollovers will happen. As of now, we would advise investors to stay away from NBFCs.
You are positive on IT. How much potential do you see in IT? Is it just a safe haven or are you seeing this on the back of the moves in the dollar index? Are you seeing a substantial earnings growth?
A bit of everything that you said. We have seen that the order size is increasing. The biggies came out with stellar results and maybe the guidance. Infosys has increased its guidance. The overall spend has increased and there are a lot of deal wins happening. Yesterday, Tech Mahindra got a big deal win and the tailwind of the rupee. All these factors augur well and they have still a pricing power unlike say pharma. We are definitely positive on IT and this is one of our most preferred sectors along with one or two more corporate and retail banks.
What is your outlook within the oil and gas space? We are looking closely at Reliance’s Aramco deal. Some of the other OMCs of late have been abuzz. Where do your preferences lie within the energy space as a whole?
We are neutral on the energy space as of now. Reliance is obviously not an oil and gas story. It has got so many businesses. It is diversified into retail and telecom. OMCs do better in spurts. They do better and then at some point of time, there are regulations and a lot of speculation around oil prices all the time.
If you look at the OPEC meet, whether there will be a supply cut, whether the US will continue to command a major share, all these things will matter. There are a lot of regulations and uncertainties. That is why we are not that bullish on oil and gas. We generally keep a neutral stand on this sector.
What about some of the consumption spaces and staples in particular? Do you find value there? The likes of Nestle, Dabur continue to see growth as well as rich valuations. Where within FMCG do you find an opportunity?
We would like some of the select FMCG stocks. There was single digit volume growth in the last two quarters. Maybe, before that, there was double digit growth and now there will be base effect also. Obviously now H2 maybe slightly better because the monsoon has been doing well for the last few days. We look at that as a positive trigger and they have been able to do some kind of a price hike in the recent times.
If you look at the valuations, they will always be costly because with a population of 130 crore people in the country, the potential of domestic consumption is going to be high. The US can have 4,000 Walmart stores or UK 4,000 Tesco stores with a much lower population of 30-35 crore. But our D-Mart has only 170 or 180 stores. Do you think we will be there over a period of time? HUL or Nestle over a period of time are going to do well because there is a huge potential and your per capita income is growing. It is more than $2000 and so there will be a rise in discretionary spending.
Mid to long term, this is a great story and you will not find it cheap and if you find it cheap, one should keep on buying in a staggered manner. That is our take on consumption, FMCG and primarily the staple products.
What is the need of the hour for the housing market which has been in the doldrums for quite a while? Do you have any preferences within the space?
Everybody is talking about the smallcap story now. This is the time to buy a smallcap and we have seen now the difference in valuation of largecaps or a mid and smallcaps over the last few months. Now, it is looking very attractive. Some time, it is very difficult to identify a good stock and maybe one of the stocks will take away your portfolio returns.
In these uncertain times, when there are slowdown worries, we are advising our customers that in case of quality midcaps, they can buy directly but for smallcaps, they have to go via mutual funds so that you get a basket of such stocks and that is going to definitely help over a period of let us say next three to five years. You are going to get very good returns. On the real estate, I agree ou that there is an inventory but over the last few months, we have seen the inventory coming down slightly, but on and off, we find some problem with some company and then there are corporate governance issues over a period of time.
The good companies are doing well where there is not much leverage. Right now, the time has not come to go whole hog and there are some people who are taking the REIT route, maybe not buying directly but investing in one of the listed REITs. The REIT performance has been very encouraging and some more company may follow. That is how we are advising our customers to take that route — either buy very good companies which are not leveraged or get into the REITs. There is already one and there may be more coming.
What are you doing when it comes to media? A lot of these companies have put up OTT platforms as well. There’s a lot of competition within the space. Where are you placing your bets within media?
When Reliance Jio said they would be offering first-day-first-show, immediately all media companies including PVR and Inox fell. Somebody asked me the same question and I said these companies would continue to do well and would not be affected to that extent, because if you are going out with your family on an evening, the objective is not to watch the movie only, it is also going out, spending time with your family and dining outside. Sitting at home and watching first-day-first-show may not excite many of us. So both will continue and yes there is a craze for OTT now. There are four people sitting in four different rooms and watching their own series, That will do well for some time because that is the race today but finally, people will come back to theatres.
Also, a lot of people want to go out on weekends and there is a lot of choice in good cinema. I think these media companies should continue to do well and so one should not write them off. If you already have them, hold them.