Keep focus on the big picture. Corrections are healthy in a bull market & give opportunity to invest:
The big bull market isn’t materially impacted by the appreciation of the dollar but the big picture on India being the place to invest will go through these challenges. This is how bull markets play out, they test your patience, they test your conviction, every once in a while there is a little bit of drift.
If you expect a straight-line appreciation in Indian markets, that is not going to happen. We will drift for a little longer and in a little wider range than what most people would be comfortable with. That is the beauty of a good bull market. It gives you chance.
A lot of the people who were left on the sidelines when the move was too fast over May and the rest of last year, it will give them some opportunities to re-enter.
MCX – A lot of juice is still left:
The business of exchanges is very interesting. It is almost like a holy grail of equity value creation; you don’t need capital to run or grow this business, there is non-linearity in terms of opportunity and there is operating leverage in the working. So, at higher volumes you don’t necessarily have higher costs.
We need this sector or this set of companies. This is a space which is closely and intimately linked to the economic and policy evolution of this country and there is going to be space for all these exchanges at some point of time to get listed. So, that is the big picture. Now, with the Securities and Exchange Board of India (Sebi), Forward Markets Commission (FMC) merger which has been announced in the Budget, a lot of these regulatory tailwinds are now going to help these guys and which is what you saw during or just after the Budget presentation when the announcement came through, MCX ran up.
NBFC’s – housing finance companies – great value creators with multiple years of growth:
The valuations of the housing finance companies are justified because there are multiple years of growth happening there, they are just going drive on fourth gear for as long as you can imagine. The opportunity afforded to them and the kind of stability which is embedded in their businesses calls for that kind of premium.
Stocks like LIC Housing Finance, Dewan Housing & Repco Home Finance are great value creators because they were in a sweet spot in the NBFC business.
NBFC’s – commercial vehicle (CV) financers – focused business model with wonderful managements:
Commercial vehicle (CV) financers like Shriram Transport or Chola are intimately linked with the CV cycle and the CV cycle is cyclical. Both went through a slowdown in disbursements, in book growth and also in terms of rising non-performing assets (NPAs) when the cycle was against them. Now, they are both very well poised to capitalise on the up tick in the cycle. Will the cycle come back tomorrow? Will it take six months? I think jury is out on that. I think it should take at least six more months but then investors will spot value here. Both these businesses are very focused businesses. They have identified segments in which they want to work, they don’t want to go out of those segments and they are wonderful managements.
Great opportunity in the insurance sector with expected FDI hike to 49%:
Structurally speaking, insurance is a great opportunity to be in. There are tonnes and tonnes of long-term value to be created with the potential opening up of the sector from 26% going to 49%.
There is more than sufficient critical mass in many of the private life insurance players at least for people to get excited as this event gets closer in terms of 49 percent stake being allowed to foreign insurance companies. The big daddy there is obviously ICICI Prudential life insurance and I think the last rumours — I don’t know whether they are facts but of a stake sell imply at least a 2-3 percent higher imputed value to the ICICI Bank stock and maybe there is a trade of 2-3 percent coming up but I think there are bigger things than the trade. This is clearly a sector, which is going to create value if 49 percent comes through.
Wind energy sector – huge opportunity for Suzlon and Inox Wind (IPO):
Suzlon is a story which will take a while to play out. The healing has been committed, new money is on the table and now the action must begin. So, there will be some hiccups and doubts with respect to whether the action is sustainable, whether the money will come in. The divestment of Senvion the money and the investment by the Dilip Shanghvi family have been announced. There are legal and regulatory hurdles to be overcome. The money has to come in and then the business has to take off.
The regulatory environment for wind energy investment in India has dramatically changed over the last six months. This is why Inox is going public. They are a very good business. Inox is a very capable and competitive player in the space.
There is going to be enough space for all players. The country which was down to less than 1000 megawatts of wind energy investments per annum could well go back to 2000-4000 megawatt, maybe 5000 megawatt for. So, look at the opportunity there and these two are the big players and Suzlon can clearly rest back its market share and pump volumes that you and I would be very surprised to see.