The past year was marked by a breakthrough in computing and technology. This year, it looks like it will be the automobile. Where in the automobile do you find the opportunity to try betting on the EV game? Or should we draw from the auxiliaries to play the CV cycle?
As far as the automotive sector is concerned, in the case of historical equipment manufacturers or even ancillary companies, attention should be paid to the EV risk. In two-wheelers for example, a big competition arrives from Ola who sets up a massive capacity. They are privately funded and could be quite disruptive. There could be many more. That’s not to say that the incumbents are just going to sit idly by and watch their market share go down, but the competitive intensity in the industry is likely to increase.
At current valuations, we prefer tractor companies where the risk associated with electric vehicles is relatively lower as well as the outlook for growth. The penetration levels are low and therefore the growth prospects are quite strong. Second, export-oriented two-wheelers are more about gaining market share. Indian companies have generally beaten their Chinese and Japanese counterparts and the demand outlook there is extremely strong.
The third segment would be commercial vehicles. As the economic recovery progresses and the investment spending cycle begins to kick in and government activity on infrastructure projects begins to pick up after the monsoon, some of the CV players will pull through. also fine, but it’s in a quarter or two.
If big companies are downsizing and deleveraging their balance sheets – whether it’s the Tata group of companies or even Birla – why should we buy from merchant banks?
This is a more relevant phenomenon for FY22 where the outlook for credit growth is not very strong. Most of it will be for maintenance investments or working capital needs, but this year the bank’s profit growth will come from a steeper drop in their cost of credit and, in some cases, much better names. . NIMs have likely peaked and will not improve any further from now on, as deposit rates are no longer falling.
The reason we see banks is a) we expect credit growth to accelerate next year as the investment cycle begins to accelerate. Keep in mind that while we are seeing deleveraging, many companies are also announcing quite aggressive investment plans in the steel, aluminum, fertilizer, chemicals, pharmaceuticals, etc. . Many multinationals are also coming to India. But the outlook for credit growth next year and from a valuation perspective, especially in the large cap space, this is an area where valuations are still fairly reasonable relative to some of the other sectors.
Short-term concerns about credit growth are temporary in nature and once the economy begins to recover we will see a very strong pickup in credit growth starting next year.
How do you see the HDFC group of companies?
This is also the case with some of the other banks that are cleaning up their books, raising capital and asset quality is no longer a problem. So people are looking for alternatives. These are not high quality banks that are not favorites. On the contrary, they still remain in important positions for many of our global and domestic investors. As the credit growth cycle picks up, these big banks have the lowest cost of deposits due to the very strong liability waiver. CASA ratios are very high and they have relationships with large companies and can meet their size requirements.
They are the ones who will benefit very early on. It’s a little too early to write off some of these better institutions just because credit growth is a bit weak. Let’s give him a little more time.
How would you advise investors on wealth creation, enrichment and wealth composition?
First and foremost, don’t be too greedy. Investing is a very long term game. Depending on the age of the investors, you must have at least a time horizon of 5 to 25 years. The longer it is, the better. The first tip would be: Don’t look for the next multibagger. Second, it is very important to do your research correctly and not to make mistakes. Many investors in their enthusiasm for getting rich quick end up making suboptimal decisions without doing proper research. The most successful investors are the ones who make the fewest or no mistakes. So by making fewer mistakes and having poor performance, you can still end up doing better than having two-three multi-baggers.
Third, focus on corporate governance. This is a very important factor in the long run. Invest in companies with good corporate governance.