There are opportunities in consumer durables and private sector banks: Sachin Trivedi, UTI MF
Companies running on wholesale-to-wholesale model, are facing some amount of challenges, says Trivedi
The Piramal Group has officially informed the stock exchanges that it has sold its entire direct investment of 9.96% in the fully paid up share capital of Shriram Transport Finance. What is your view on NBFCs? What do you think of deals and transactions taking place in this space --whether it was DHFL and Aadhar which got the money and Piramal selling Shriram stake?
Post IL&FS issue, we have seen some amount of credit crunch in the system and that has resulted in some of the companies getting stressed. The origin of this problem is basically lying on the asset liability mismatch which is where we found some stress in some of the cases. Companies are responding by selling some of the assets which they are holding on to meet the asset liability mismatch. Of course, we have to also keep in mind that at this juncture, there is this issue of where to find somebody to lend money to these companies.
You find that good quality companies running on goods model are able to raise money and the cost of credit for them is still reasonable or in fact has improved. But the stress cases are finding it challenging to raise capital. Over a period of time, as RBI also eases liquidity norms or the PE guys find attractive assets, money will start flowing in to lend some sort of support to the system.
When companies are running wholesale to wholesale model, they are facing some amount of challenges. But the companies which are running on wholesale to retail model are doing quite well.
Talk to us about the themes not for the next 10 years but for slightly medium to longer term that you are betting on. Ideas which have the next big compounding potential going forward.
Typically in the past, magic will keep happening so that the compounding stories would go back to the basics, where the companies are generating healthy cash flows and are finding enough opportunity to redeploy those cash flows back into the business.
Mind you, one important factor that we have to keep in mind is that the returns which the company generates on the original investment, should be higher than the cost of capital. What they have to do is just keep on finding that good piece of business where they can keep investing and run this compounding model. Here is one principle we always keep in mind and that is what the core of it is. But on the business front, we have to keep in mind that our per capita income even today is still growing at 7% per annum. In the developed world, it could be just 0.6% and on the emerging market side, it could be around 2 to 2.5%. So, we are growing fast comparatively.
As our per capita income grows, there are a whole host of opportunities which are yet to play out. Consumer durables would be clearly a bet including auto. But we have to make right picks.
The other space that we clearly like is the private sector banks, especially in the backdrop of the temporary challenges being faced by the NBFCs. These companies with adequate capital are in a sweet spot because they have over a period of time, developed good liability franchise and the cost of capital is quite good. They should continue to be in a sweet spot for the next three to five years.