What do you make of this huge outperformance of the Indian market versus the rest of the world? The rest of the world is now going up. Do you think India will continue or will India just keep the momentum going?
I always maintain that India has a unique advantage compared to others; we have a very clear roadmap for growth and because of this clarity of growth, we are attracting a lot of money to our country.
India is basically investing more money in building the capabilities of tomorrow. A fair amount of capacity expansion is taking place in 14 different sectors where PLI schemes have been implemented. We are also inviting new investment in sectors like defense, where a bigger game is now taking place. We have a very different proposal when it comes to growth.
On the other hand, our financial discipline as a country has been quite strong. I think it’s probably become the talking point within the global markets among analysts, where they talk about exactly how India handled the situation during the pandemic by not leaving the money in the hands of the people, but at the same time taking care of the people in the form of food supplies, 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. Without a doubt we are having a growth rate of 7.5% of GDP. The rest of the world’s places are fighting the battle against higher inflation and a significantly higher threat of recession. In general, altogether, it is an advantage to come to India because of this particular situation that we have put in place during the pandemic. In my view, given the kind of strength we’re showing by spending money on infrastructure, we’ll still be a completely different proposition.
So yes, the rest of the markets are catching up with India, but we would lead the pack. We are already advanced in the global economy and into a fourth position and I think we will see a higher amount of economic growth and India will become a $5 trillion economy sometime in 2026.
In general, we have a clearly high amount of potential as a result of which, a good amount of investment is reflected in the share prices.
We’ve seen quite a bit of momentum in real estate, as well as in cement stocks. Are there stocks you want to mark from these two sectors?
Real estate is definitely showing strength and that means the home finance business could easily grow at a compound rate of around 20% as well. One feels relatively safe to add home finance stocks where the visibility for the next three to five years is intact.
So within real estate, I would like to buy allied sectors in housing finance, some of the construction materials companies that look relatively interesting, and cement stocks can’t be neglected either.
In the second half of the financial, cement is showing two different potentials; one is infrastructure-driven growth that is going to create more demand for cement. On the other hand, industries are entering expansion mode in the segment of capital goods, metal, commodities and even in the real estate segment for housing and commercial projects. Basically we’re seeing more activity in your spend and that’s where cement consumption will increase.
In my opinion, cement would definitely remain a very strong candidate within the building materials segment along with FMEG, where probably in the appliances segment, we are likely to see strong demand in the second half of the year.
So yes, one can selectively look at those companies. The address of individual companies is required to be accounted for in the portfolio.
What is your opinion about the diagnostic space?
There is no denying the fact that the amount of money individual consumers will spend on health will be higher. Even insurance companies would mandate a higher amount of expense from the customer in large part due to the fact that they want to insure against the proper risk to life and health. Therefore, there is going to be a growing demand. However, during the pandemic, these diagnostic companies likely achieved much faster growth. The situation has changed and many of these companies are now likely to see some moderation in growth and at the same time they will also have to wrestle with the increased amount of cost structure.
Maybe a certain amount of technological advancement like after the 5G rollout and if advancement in the diagnostics space starts to take place, you’re probably going to see a higher amount of investment in your business and that’s going to be challenging in the short term, but the long term the potential would be high.
When it comes to the insurance space, what would be your biggest bet? it continues to meander in the 650-700 range. Do you see him making a move any time soon?
The life insurance segment remains a fairly attractive proposition. More money is being put into savings and investments and more money is being allocated to secured assets, so life insurance remains an extremely favorable play.
Most of the young generation is basically working in EMI for home loans, car loans. Your first requirement will be to buy the insurance and that’s where we’re seeing insurance coming together and growth happening. So, on the one hand, one can link the premiums related to life insurance and health insurance to the amount of money that is basically being borrowed by people to pay for EMI.
If credit growth continues in the retail segment at around 20% or more, then in such a situation the life insurance business would continue to experience a similar type of growth, at least in select sectors. Selective companies would get around 20% more growth. From that perspective, we remain extremely positive about the new business premium that companies are collecting from customers. We are extremely positive about the other segment of life insurance that is becoming a bigger part of the book for businesses.
On the downside, while stock prices are underperforming, the important part is that in previous years, these stocks climbed a valuation that was probably ahead of its time. As a result, they also encountered time corrections along with a certain amount of price correction. To me, that part of the stock price action has passed as far as the market is concerned and we could very well see a greater presence of life insurance companies in the investor portfolio.
We like some of the companies, including Bajaj Finserv Life Insurance and Bajaj Allianz Life Insurance. That’s still a positive buy for us. LIC, of course, remains positive on the valuation front. However, a larger amount of follow-up has to happen on this particular counter, but otherwise the actions are still positive.
it is underperforming due to a certain amount of overselling by existing investors, but otherwise the business fundamentals remain extremely positive. So yes, we like this sector and selectively add stocks to the portfolio on corrections.