He highlighted that many public sector undertakings (PSUs) have large land reserves, which could unlock significant value through strategic corporate actions.
Furthermore, he highlighted that organic growth would support PSU inventory dynamics, noting that PSUs with inherent capabilities have become increasingly efficient and are securing more orders. This combination of high capacity utilization, inbound orders and improved efficiency provides huge tailwinds for PSUs.
Below is the verbatim transcript of the interview.
Q: A few themes you were perfect on. One is for public sector undertakings (PSUs) and the other is for the metals space. Let’s talk about PSUs first, because yesterday, after the exit poll results, we had these stocks seeing a strong rally. How do you approach them? The theme as a whole worked very well. And I think banks in particular are something that you also appreciated. What still looks attractive at these levels?
A: I have always maintained that the underlying theme of PSUs is that they can get orders, particularly on the manufacturing side, on a nominal basis. And that’s what leads since the government itself was keen to galvanize CapEx and galvanize investment from the listed space or from the companies themselves, from the private sector, the way in which they did it was actually run by the public sector. And most of the CapEx here came from named orders. They don’t need to wait for them. So despite the traditional type of PSU inefficiency, if you will, the label that has been around for so many decades, PSUs this time have been inundated with orders and are therefore able to fulfill them. A classic case, whether it’s railways, defense, metallurgical space in terms of expansion, etc. So what I see is that with the passage of time, with the adoption of technology, with the passage of technology transfer, power supplies with inherent capabilities have become more and more efficient , become more and more efficient and receive orders. So, a combination of high capacity utilization, orders received and efficiency improvements, I think that has created huge tailwinds as far as PSUs are concerned.
This is true in the banking sector, where the Reserve Bank of India (RBI) took responsibility for creating norms that eliminated legacy problems, which made banks recognize their past problems and recapitalize them whenever necessary. So in this kind of scenario, banks have now gone to 1.3, even 1.5 times their book value in some cases, which is even more expensive than some of the smaller private sector banks. And when it comes to other manufacturing sectors, the Make in India theme, etc., from a defense point of view and other points of view, you actually had a sort of Goldilocks scenario and a period golden where a lot of things went off regarding power supplies. .
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Today, valuations are not expensive. Organic growth will keep them going, but I think the bigger play might just be division, if you will. Many of these companies historically held land reserves. They have mining rights in the case of metallurgical and mining companies. They have manufacturing capabilities. And splits in some of these corporate actions may well generate more value as we move forward.
Q: The other one you mentioned briefly was the metal space. And I know a few stocks in there, you had a little counter trade when the street wasn’t really looking at it. JSPL and Vedanta, both have done very well. Speaking of a split, Vedanta could also generate value. Are you still positive on these two?
A: A lot. I think the theme in both cases has been a combination of increasing capacity, some deleveraging, governance issues improving significantly and in some cases, like in Vedanta, demerger – disclosure and The obvious caveat is that I either have healthy stocks or I currently hold those stocks. . My interest should therefore be expressed as a disclaimer.
That said, I think the theme is different, which is that the dollar index backdrop is weakening, number one. And we’re living in a wonderful time where even commodity prices, even though some commodities are going up, this scenario existed several years ago. But the reason it didn’t happen is because China became a party animal because its economy collapsed.
So at that time, when the transition to electric vehicles (EVs) was happening, the transition to clean energy was underway, many of these commodity movements could have happened even two years earlier, but as I said, China played the role of leader. party animal.
Today the Chinese economy seems to have established a floor, seems to have established a base and, in my opinion, a weakened dollar, and in the context of the commodity crisis, oil is not growing, which is great for India, but some of the base metals have actually been helped a lot by factors like supply disruptions, issues in various parts of the world regarding mine closures, port closures, affected movements , floods, etc.
Considering all of this and the fact that capabilities are now being brought into action because countries like India are throwing their weight behind it, I think we could see a golden period in the next two to three years for commodities . And who better than the names that you mentioned, because they have mining rights, they’re part of the base metals and they’re sort of world-class capabilities in most cases. Long answer to a short question.
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