RBI maintained its accommodative stance and retained the FY22 growth forecast at 10.5%. Was it what you expected?
The RBI policy has been on expected lines that there will be no rate change, etc, even before the second Covid wave started. After the start of the second wave, whatever hope anybody had of any changes in the rates or any other things had receded. So that has been largely on the positive line. I do not think there has been any surprise.
The equity market seems to have taken it positively but since it was on the expected line, there is no surprise either on the positive side or on the negative side. Market seems to have got confidence that the support of the regulatory authority and the government will continue in the backdrop of a possible dip due to Covid resurgence.
Valuation wise, is there any opportunity to buy into the insurance plays?
That is a secular growth theme and an under penetrated category. We should specifically be looking at the valuations. In general, the Indian market has not looked at the valuation for the last six-seven years for good quality growth companies backed by strong ethical corporate governance oriented managements. Now within that also falls almost all the listed insurance players — both life as well as general. Last year, the industry took advantage of Covid to make people more aware of the need for insurance and was able to grow reasonably well.
Also let us keep in mind the backdrop of the previous year’s Budget wherein the tax benefits on some of the insurance products had been withdrawn. Despite that, industry has continued to grow and the second wave of Covid will make people more cautious and aware about the need for insurance. I am sure the industry will take advantage of this as well.
For a medium to long term investor, any correction is a good opportunity to get in. I do not think valuation is something I would focus on in case of the insurance sector.
The PLI scheme is impacting a lot of sectors across the board. Your take.
One, it is too early to be able to see the actual benefits of this whole scheme which has been given by the government to the industry. Only time will tell whether the industry players are able to take advantage of this or not. But yes, given the construct of the scheme and given the way it has been designed and measures have been taken, it looks like it can be a good benefit to the players who take advantage of that. Almost all leaders in the sectors in which this scheme has been given, are already on the way to take advantage of this scheme.
It looks like the market has in advance rewarded the listed players in all these sub-segments where the scheme is coming in. The scheme has been designed in such a way that the bigger players benefit instead of it becoming a socially democratically equal benefit to all which does not result in any effective benefit to anybody. In a way, it can be questioned also but at the same time, the government has been very aware and it has been made sure that the scheme is actually able to give benefit to the industry.
The market has already rewarded the top listed players in the respective sub-segments. The execution will be left to the individual companies and given the track record of some of these players, they will indeed be able to execute it well.
ET Now: What about autos, how have you looked at the kind of numbers that trickled in?
Kunj Bansal: The March sales numbers were largely on expected lines and there is no point comparing year-on-year because last year March, last 10 days or 12 days got wiped out. Thankfully, that has not happened this year. So the next comparative move on a month on month basis also is not as relevant. February had two, three less working days and March being a year-end anyway, there is always an inventory push into the supply chain to the dealers, distributors etc.
Having said that the numbers have been on the expected lines, more growth has been towards the commercial vehicles which is something that lagged in the initial growth period. When recovery started in May, June and July, mainly in two-wheelers and passenger vehicles saw increased sales, not as much the commercial vehicles which is now catching up and that is a good sign as it also reflects the increased economic activity.
Suddenly, the whole second Covid resurgence thing has come in and we will have to monitor those effects going forward. But leaving that aside, something good has happened. Going back over the last one, one and a half months, some short-term negatives have developed for the entire automobile industry. These are rising fuel as well as steel and all other raw material prices. The second wave of Covid also has reduced mobility and can reduce it further as lockdowns of various degrees come back in.
Partly in anticipation of these factors and partly as the news flow progressed we already saw a correction in some of the automobile stocks. Now this kind of a negative sentiment would continue for some more time in the short term. That is my view and I can go wrong, but I think the sector as a whole is set to look towards growth over the next six months to one year if we expect commercial vehicles to grow mainly because of the seeming pickup in economic activity once the second wave is over and hopefully, the commodity prices also easing out.
Oil has already corrected from $70 to $60. It might be a temporary relief, maybe it can go up further but that is monitorable. The market is 100% higher from last year’s level on a 70% growth on a financial year level. In a lot of sectors, the valuations are not comfortable. This is a sector where the valuation of stocks is at quite a comfortable level.
For the medium to long term, the sector from an investment point of view, offers a good opportunity.