Why Pashupati Advani is betting on power PSUs
We like the ones in power sector like Power Grid and PTC and REC among others
Everyone is talking about a change in dynamics and how the sentiment has altered. But you are not utterly convinced?
What I have seen is that Diwali came early with the finance minister lowering taxes for new companies and for some of the old companies as well. Of course, in India, we are used to having to look at the fine print but the market revalued itself whether Nifty was at 10,700, 10,800, 10,900 and now it is set for 11,300, 11,400, 11,500, 11,600 type range. It moved up basically because people did the calculation as to how much the index should go up.
The small and midcaps are not really benefiting yet but it is early days yet because I think that people need to change the way they do business and figure out how to make money in this new scenario. I guess we are going through to a point where the long-term objective is to have taxes without allowing any exceptions, more like the US and it will probably take us a few years to get there because right now we have lots of exemptions.
How critical is it that the central bank comes out with rate cuts this week? Do you expect them to cut rates this time around as well?
We are in a situation where a lot of things are not going up at all. You really need to cut rates to stimulate the economy. The government provident fund has increased the rate. I do not know what is going on there because it is also a very big pool of money. But hopefully, all countries in the world are bringing rates down. We are also going to bring rates down and we are also trying to raise money overseas as a government in which case that money will cost less here. That is a way of improving liquidity in the system because when you do not give people earnings in banks, then they have to look for alternative assets and then they look for risk assets and hopefully that means the equity markets.
Where does one look for investing right now I mean how willing would you be to go in for some of the riskier assets looking from a more long-term point of view?
What has happened is that people who have lived in western countries for many years have been used to 1%, 2% type rates on their bank deposits, sometimes even less and negative in some cases. So they are looking at riskier assets. What is happening as a trend is that people are not expecting markets to go crazy but they are getting into high yield stocks.
Again in India, most of the yield stocks are PSUs. The government wants money and they want the companies to pay out the dividends. The government also benefits from the dividend distribution tax. So, it is a win-win for them in all pieces. There are a number of PSUs that pay pretty decent yields and that is where the money is going to start moving.
Which are the ones you are looking at?
We like the ones in power sector like Power Grid and PTC and REC and there are quite a few of them, paying 4%, 5% yields once a year. If you miss the dividend season this year, they may be pushed to give special dividends in the early part of next year as well. That is certainly a sector one should look at. Also, investment trusts are coming up which are going to be yield driven as well. That is a combo where people can take their money that is sitting in bank deposits and hopefully the banks are still going to be in business when they open the paper in the mornings because that has been the trend for the last few months. I think they will be looking at those stocks.
Online sales have gotten off to a great start for the festive season. But what about overall consumer demand and consumer sentiment picking up on account of the festive season?
Definitely, we have to see the breakup of the numbers for rural versus urban and rural demand is still there. We have had a decent monsoon and September has been excess rainfall but it will take us a month or two to see its impact. But the fact that people are spending is again an indication of good things to come and that will start the process of the multiplier effect of money and hopefully will take us off the downward spiral.
Where else are you finding opportunity because a lot of market experts that we were chatting with believe that it is the mid and smallcaps where the opportunity is ripe right now?
India has always been a market of value and for value, you have to stock pick. The challenge with the small to midcaps right now is that if you have money to grow, you have to go to a bank to get money because the NBFCs are kind of shut for the day. The amount of work that you have to do to give somebody Rs 20 crore versus Rs 200 crore is the same and so banks are reluctant to give it to the SMEs and they are the people who need the growth capital.
I think the finance minister has given some benefit to them but we are not seeing that playing out yet. But it will. Indians are opportunistic and at the end of it, all the good companies with good managements are going to attract the money and grow.
Have you bought anything afresh in the last three months?
I have bought a couple of yield stocks.
Can you be more specific?
I would rather not be specific as our regulators are not very friendly about these kinds of things.
What makes you bullish on the pharma space? Are you seeing opportunity across the board or is it very specific select names?
The health insurance industry in this country is getting more customer friendly and some of the states are also going to go for insurance for everyone. That means people will be able to get medicines and we are a country which has got very high diabetes, very high heart disease and those kind of generic drugs are going to improve.
India has always been a story of the domestic market first and these guys have been looking outwards, but they are all starting to look inwards as well. The other thing is that the larger pharma companies who were getting notices from the US and Europe last year to clean up their manufacturing plants, have gone and done capex. They will benefit and I personally believe that the rupee is going to get a little weaker and that will also help them.