Markets are again and again telling us that banks are unlikely to participate in this credit cycle. Should one start thinking differently away from conventional wisdom?
There are two-three things we need to consider. One, the liquidity in the system is very high and because the liquidity is very high, most of the banks are deploying their excess money in government securities and the credit growth is just not there in the system.
Every fortnight, when the RBI data comes up, there is an expectation that maybe there is some uptick in credit growth. However, there is simply no uptick in credit growth. It continues to be 6-6.5%. Now all banks, NBFCs are grappling for that 6-6.5% and most banks are giving projection that we will grow our credit book by 12% to 15%. These things do not match up and this will be the biggest issue as the results start coming out going forward.
We will see some squeeze in margins because of excess liquidity and lack of credit growth and secondly, the banks will not be able to grow at the rate most of the analysts are pencilling in. The initial up move in most of the banks happened simply because the Covid impact on bank balance sheets came out to be much better than expected at that point.
For sectors like chemicals or especially cement, coal is an important raw material which fires their furnaces at their plants. Given how coke prices are up almost 3X this year, could they be at the receiving end?
You are also following the news developments on the cement side. There are huge capacity announcements being announced across the broad, not only from established companies but from some new entrants also. On top of that, there is this extended monsoon and the input price pressure. When gas prices are moving up, the other alternative for gas because of gas shortages is fuel oil and to that extent, those prices have also shot up.
On the cost side, we could see negative surprises for cement and because of the extended monsoon, the prices have been somewhat under pressure. The longer term prospects are still good in my view for cement, but there needs to be a valuation correction in many of the midcap and largecap stocks combined.
If there is a market correction and because of some negative results, etc, if the stock comes off and we can get it around Rs 6,500 odd sometime over the next few weeks, that might be a good level to bet in.
What is happening with Aditya Birla Fashions? There was quite a fair bit of spurt. Is it a reopen trade or something else at play here?
Reopening trade are the ones that got hit the most due to the lockdowns and as things open up, apparel demand is going to come back very sharply. It constitutes a large part of their overall demand and we actually have started accumulating this as a reopening play.
My view was that we will do it slowly as the stock corrects but it shot up and so hopefully, as we get some correction going forward, that will be a good opportunity to get in. But I am positively inclined towards Aditya Birla Retail. Strategy-wise, the company is well placed and the next two-three years should be good for them once the entire economy opens up. But it is a question of at what price levels we want to get in.
I saw this kind of an outperformance in 2014 but that was an event driven narrative which was more perception based. But what an outperformance by India in August and September!.
In 2014, there was a paradigm change in the outlook and to that extent it was justified because we were coming out of a really bad phase and we were potentially entering into a good phase. Markets always react like this on such news. I do not think that was a wrong reaction.
I have seen this kind of outperformance of Indian markets in 2007 end. Most of the global markets had peaked around August, September and they showed some slowdown trend whereas Indian markets continued to rally. In fact, the Indian market rallied 20% more even as all the other markets had peaked out and then we saw the crash in January.
I hope the same thing does not repeat but you cannot have an argument that you go up because global liquidity is ample and global moves are happening and then you do not fall or do not correct when the reversal happens across the world. That makes the market risky and that is the risk I see in this market.
Economy and the markets are linked to each other but not on a day-to-day basis. During the very bad times of the second wave in India, the market continued to trend up and to that extent when things are normalising, it is possible that the market gives a decent correction.
People should not try to correlate things on a day-to-day basis. I believe that the market is over extended in India and I have been expecting a correction for the last few weeks. It is not happening but I think there will be a correction and that will be the opportunity for many investors.