What is the market resilience telling you because on many days, the steep fall in global markets has not quite rubbed off on Indian markets?
Exactly. Rising yields, higher crude price, higher dollar index typically have not been very good for us. So while it is too early to say that there is a structural decoupling, I do not want to rush saying that there has been a strong resilience. The correction across global markets including Nasdaq is between 5% and 8% in the last few weeks. It has to do with liquidity flows– both domestic and global. It also has to do with some of the measures we have taken which includes a bad bank, the PLI schemes across various sectors, the resolution and sale of some assets including Air India which is on the pipeline. So, it is a combination of both liquidity and structural moves.
How long will this sustain? We will have to be a little watchful as typically rising yields, rising crude prices and DXY being high have not been favourable in the near term for us.
What is your view on the gainers from crude price rise – ONGC and Oil India. Would you buy into these names or have you already bought into them?
Not as much as nobody saw the sharp rise. We track a few energy names. Tata Power looks very good fundamentally for the long run. They have already stated their plans of having 60% of the portfolio dedicated to clean energy. I think the new Electricity Amendment Act has been in the news and there are a lot of sops including smart meters, additional incentives for cleaner energy etc. Tata Power also is working on EV charging in terms of their tie-up with HPCL.. The solar EPC books continue to swell. They do pretty well on that. They also benefit from the coal shortage with the Indonesian JV they have.
Another thing which we like is IEX, which is basically the electricity trading platform or the market place, an asset light platform. They have this gas exchange which is a 100% subsidiary. This is a new age business where energy would get traded in the marketplace. We are seeing August and September being very strong months in terms of volumes IEX updated to the exchange. So these are some of the few names we track more on a fundamental basis.
What is happening with Bosch, is there something that the market knows that we do not?
I have not been able to decipher the move today but one cannot track Bosch with one individual product line. Valuation wise, the auto sector is facing the problem of raw material inflation, semi-conductor chips — which in my view is 1-2 quarter phenomena and probably would be resolved much earlier than a lot of us estimate.
We have a broad coverage and cannot specifically comment on Bosch. Hero Moto for example sold 56 lakh units last year. It gained market share. While the volumes were down, the average realisations were up. They are gaining on scooters and premium bikes and exports which was supposed to be their weak point. They have good plans on mobility on the EV front as well. I have always seen ROCEs above 18-20% for Hero. One has to buy good businesses going through temporary pain periods.
In ancillaries, we like Minda. It is the more content, more kit value per car play being leaders in switches and horns and lightings and are now getting into airbags and alloy wheels, infotainment systems, airbags, etc. All the value added segments are there. Even Ashok Leyland was trading at Rs 40 when Covid started. Selectively, one can start accumulating but more patience is needed and a long-term view. I am hoping the problems get addressed over the next few quarters.
From the broader markets, IRCTC is one stock to watch and has surprised people. Would you continue to accumulate this stock at present levels?
It is very difficult to give a fundamental view after a stellar rise in the stock. Obviously there are a couple of reasons. One was this entire reopening theme and secondly, IRCTC is being valued like some of the platform plays. It is the most heavily transacted website in Asia Pacific in terms of web traffic and actual transactions are happening.
So if you see the revenue pick up, catering is still the highest part where they are revamping their ready to eat menu which is almost 40% of the revenue earner. Then there is internet ticketing, water and tourism and other services. Obviously the market believes that this is a platform play and with the kind of data it handles, information can be used and the payment gateway of IRCTC can be used by other let PSUs as well. One has to see if that will play out or not.
One cannot typically evaluate them on price to sales or on PE, etc, multiples. I call this concept investing. I am lucky to have put some money in IRCTC but the rise from Rs 2,000 to Rs 4,000 plus obviously nobody saw coming. I am not too sure in terms of adding incremental money to it. It probably needs a separate bucket where one can put some ideas like these as concept investing and hope out of seven or eight you do one or two fly.