What do you think of this major outperformance of the Indian market versus the rest of the world? The rest of the world is going up now. Do you think India will follow or will India just keep the momentum?
I always maintain that India has a unique advantage compared to others; We have a very clear growth plan and because of this clear growth we are attracting a lot of money into our country.
India is fundamentally investing more money in creating the capacity for tomorrow. Significant capacity building is taking place in 14 different sectors where the PLI programs have been implemented. We’re also inviting new investments in sectors like defense where there’s a bigger game going on now. As far as growth is concerned, we have a very clear statement.
On the other hand, our financial discipline as a country was quite strong. I think it’s probably become the talking point in global markets among analysts where they talk about how exactly India has been handling the situation during the pandemic by not leaving money in people’s hands but taking care of it at the same time the people took care of the supply of food, vaccines etc.
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Now if this is something that India has done differently compared to others, I think the finances are definitely better managed compared to global economies. Undoubtedly we have a growth rate of 7.5% of GDP. The rest of the world is battling higher inflation and a much greater threat of recession. All in all it is an advantage to come to India due to this particular situation that we have implemented during the pandemic. In my view, given the type of strength we’re demonstrating on infrastructure spending, we’re going to remain a very different position.
So yes the rest of the markets are catching up with India but we would be leading the pack. We are already well advanced and fourth in the world economy and I think we will see major economic growth play out and India become a $5 trillion economy sometime in 2026.
All in all, we have extremely high potential, which means that a good investment volume is reflected in the share prices.
We’ve seen quite a bit of momentum in both real estate and cement stocks. Are there any stocks from either of these sectors that you would like to feature?
Real estate is definitely showing resilience, and that means the home finance business could easily grow at an overall rate of around 20%. One feels relatively safe adding home finance stocks with visibility intact for the next three to five years.
So within the real estate theme, I want to buy related sectors in housing finance, some of the building materials companies that look relatively interesting and cement stocks cannot be neglected either.
In the second half of the financial year, cement shows two clear potentials; One of them is infrastructure-based growth, which will lead to increased demand for cement. On the other hand, industries are entering expansion mode in capital goods segment, metals and raw materials segment and even real estate segment for residential and commercial projects. We basically see a higher number of activities for their expenses and that’s where cement consumption will increase.
Cement, in my view, would certainly be a very strong candidate within the building materials segment alongside FMEG, where we are likely to see robust demand in the white goods segment in the second half of the year.
So yes, you can look at these companies selectively. Instructions from individual companies must be included in the portfolio.
How do you see the diagnostic area?
There is no denying that individual consumer spending on health will be higher. Even insurance companies would charge the customer higher expenses, mainly because they want to insure themselves against the reasonable risk of life and health. So demand will increase. However, during the pandemic, these diagnostics companies have likely embarked on a much faster growth trajectory. The situation has changed and currently many of these companies may be slowing down some level of growth while also struggling with the higher cost structure.
Maybe some technological advancement like after the 5G implementation and when the advancement in diagnostics starts they would probably see higher investments in their companies and that will be a short term challenge but the long term the potential would be high.
In terms of insurance, what would be your best bet? continues to meander in the 650-700 range. Do you see it making a move soon?
The life insurance segment remains very attractive. More money is being put into savings and investments, and more money is being put into secured assets, so life insurance remains an extremely cheap game.
Most of the younger generation work essentially on EMIs for home loans and auto loans. Your first requirement will be to buy the insurance and that’s where we see insurance coming together and growth happening. So, on the one hand, you can tie life insurance and health insurance premiums to the amount of money that people are essentially borrowing to pay for EMIs.
If credit growth in the private customer segment continues at around 20% plus, then life insurance business would continue to experience similar growth in such a situation, at least in selected areas. Select companies would achieve around 20% plus growth. From this perspective, we continue to see the new business premium that companies collect from customers as extremely positive. We are extremely positive about the other segment of life insurance, which is becoming increasingly important to businesses.
On the negative side, while stock prices are underperforming, the important part is that these stocks have achieved valuations that were probably ahead of their time over the past several years. As a result, along with some price correction, they also encountered the time corrections. To me, that part of the behavior of the stock price is over for the market, and we may very well see a greater presence of life insurance companies in investors’ portfolios.
We like some of the companies including Bajaj Finserv Life Insurance and Bajaj Allianz Life Insurance. That remains a positive buy for us. LIC remains positive on the valuation front, of course. However, a larger amount of followers needs to enter this particular counter, but otherwise the inventory remains positive.
underperforming due to some overselling by existing investors, but otherwise fundamentals remain extremely positive. So yes, we like this sector and will selectively add the stock to the portfolio on corrections.