A lot of Covid related worries are now out of the way. Is there time for an incremental pick up within the infrastructure space?
I do not think the fundamentals have changed for the capex cycle which the government has thought about. I do not see any change because of the recent events. When the government kickstarts, often we get a multiplier effect but that was always there. Everybody can buy these stocks at better prices now. But the overriding fact is that some events are coming up which we just need to get over before buying the favorite stocks in the favorite sectors. Just hold on for a couple of weeks.
We have heard big voices talking about the decadal shift in the real estate sector. Given the fact that everybody is talking about a bit of change in portfolio allocation, do you think real estate stocks make a quasi good play for shift towards real estate?
Well I think that is a different question in terms of asset allocation because you are going from potentially liquid markets to illiquid assets and unless you are expecting a quick turnaround in terms of your investment in property, which always flows with different ranges, then it is really not an asset allocation that would be shifting towards this point.
Again partly because we could be seeing higher interest rates in India, there are no two ways about it. The real estate market will continue to do well but maybe some of the gains that we have seen over the past year along with everywhere else in the world have been fueled by easy money. When easy money is not there, it might be a slow progress but for those gains to be made, you should shift in the markets to property at this point. But obviously there is always an allocation there which you should be making with the India portfolio.
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It depends on where you are in that cycle of your own investments. If I felt the property market was going to go up, I would probably be more into affordable housing and some of the real estate stocks. I have always tried to play real estate through the material sectors because one is getting a more diversified number of companies to play with rather than just a pure business.
The other big event coming up very soon is the LIC IPO. A lot is going to depend on the market conditions and the pricing of the IPO. That said, it is also going to suck out some amount of liquidity from the markets?
Well maybe some of the selling yesterday would have given people the dry powder now for the LIC IPO but it now depends on how markets behave over the next three to four weeks and also the kind of valuations which the bankers are looking at to do the IPO .
So again, quite a number of things have to be seen before making any comments on whether it is a good opportunity or not. But hopefully, given the way markets are, the valuations might be more reasonable than maybe three, four weeks ago when it was first mooted to come to the markets. So, if that is the case, it can not be bad news for investors.
What is your take on crude prices and the impact it could have on the energy companies or sectors like aviation? Do you see it as a big risk for India even in terms of the macroeconomic conditions or do you see it as a temporary phase with crude at $ 100 dollars per barrel?
There are two factors; the first factor is that even before the geopolitical developments, oil price was around $ 90-95, partly because a lot of companies are now not investing because we are all moving towards renewable energy, green energy. If anything, after this geopolitical event, that will actually increase in terms of the rate of investments in new energy.
Therefore investment in the old energy is going to remain very low. There are two ways to think about this; if growth is going to continue at the rate we have today, then oil prices are going to remain higher for longer. We have seen forecasts showing crude at $ 110-115 and that obviously puts pressure on India’s current account deficit which then puts pressure on the currency.
We have talked about an increase in oil prices, but do not forget that yesterday we would have seen a 1.5% fall in the currency as well. So, that increases the cost of buying and shipping oil to India. That is the other factor one needs to look at. I would say that we are in two camps here; one of geopolitical plus demand which will keep the oil prices higher, to the other side of the coin which is that higher inflation, higher interest rates will bring down growth at some point.
Therefore, commodity prices will correct including oil, but at this moment, that is the most difficult call to make. In the short term, commodity prices including oil remain elevated.