Air India has already received two bids and one is from the Tatas. Do you think that once Air India gets sold off, PSUs would be on fire? Already some of the positions are getting built within the PSU pack?
It looks like the government has swung back into action with reforms. And it is not only about the divestment in Air India, There have also been a lot of other reforms or policy related announcements in terms of packages for telecom, auto components, roads etc. It is definitely bringing a lot of confidence that the government will support the entire framework wherein the corporate sector earnings growth and the flows can be much better and that is giving some sort of comfort to the participants.
Having said that, we have to reckon that as far as divestment is concerned, we have been talking about BPCL, BEML, and a couple of more names but we are yet to see any meaningful conclusion. It has been more than 12 to 18 months now and just the announcement need not make us so much positive that things will happen tomorrow, But definitely, whatever the government is doing is extremely positive and that is because the market is at an all-time high. People look out for undervalued government companies where they can put in smaller allocations and that is why we are seeing incremental action in PSUs like NTPC, Power Grid where the valuation and dividend yields are far more compelling.
The government has done its bit for telecom. Do you think that Vodafone has it in them to once again capture the market and grow again?
The details of this relief package shows that the immediate relief Vodafone was looking for to take care of their cash flow requirements has been taken care of. We think 75 to 80% of their requirement is taken care of by this package. Once the government ends up taking a stake in , that is something the market may not like. Once Vodafone gets this relief and if they are able to get another funding for $1.5-2 billion, that would definitely be good in terms of taking care of the requirements and to actually regain the market share which they have been losing. So it is a short term relief and positive trigger for Vodafone, that they will not end up having a major issue with their commitments to the bankers etc. That is a relief but it remains to be seen how quickly they are able to raise money and are able to get the traction back on their subscribers.
We think that this development is far bigger a positive for names like Bharti Airtel and Reliance because just a three-player market and government support for Vodafone would make us a stronger case for a rate hike. Already Bharti Airtel has raised sufficient money via rights issues. So these two players are far better placed if there is a price hike versus Vodafone.
Do you think the technology-linked auto sops could go a long way in boosting auto ancillaries, because the cleaner the energy, the more spares and parts it requires. Do you think that that could be a good way to play the entire clean energy space in the auto sector?
The overall incentive over a period of four years could be about Rs 54,000-55,000 crore and for OEMs, the incentives can be in the range of 13-16% and for components it could be in the range of an 8-16%. Our belief is that the absolute amount or the percentage of incentive does not appear that great but it may end up getting more investment for the new technologies or the advanced technologies in terms of new investors coming in, job creation etc.
I definitely think that compared to what the market was expecting, this scheme can be viewed positively and particularly for some of the OEMs like Bajaj Auto, TVS both of which could get some benefits out of it. Apart from that, when it comes to auto components, a company like could be a beneficiary because of the kind of product range that they have in terms of advanced technologies. So these are the names where there would be some benefit from the PLI scheme. Overall, the auto sector has seen a lot of headwinds and challenges and this might provide a small relief to that sector at this point of time.
What are your thoughts on the power space? There’s a lot of momentum in NPTC, Power Grid, Tata Power. Do they make for good investments for the long haul?
These stocks are typically for investors who are looking for some stability, dividend yield and less volatility compared to the broader market. For somebody with any kind of appetite, these are good names to have, particularly Power Grid and NTPC and to some extent even Coal India would fit into that theme, where the companies have not really performed big time but valuation wise and most other parameters, they continue to look quite attractive.
So it is sensible to have some allocation for these names, given that the market is at all time high levels and the government is also doing its bit in terms of reforms etc. Tata Power is a completely different story compared to some of the PSU names because of the kind of initiatives that the management has taken to take care of their debt.
Also in terms of the other power alternatives, green energy and the EV story which is where Tata Power has outlined some plans, people might look at it differently and there might be some excitement because of those initiatives that Tata Power has taken. Tata Power is something that we have been liking a lot and we would recommend some exposure to that name.