Sanjeev Prasad, Managing Director, Co-Head, Kotak Institutional Equities, is of the view that the short-term narrative for India is very strong. Prasad believes there has been a fairly strong economic recovery and the medium-term narrative is also looking very good because the government has done all the right things when it comes to the investment aspect of things.
He said, “I am quite positive that you will start seeing private sector capex picking up in a big way; and also the housing cycle coming back. So on the back of that, you could possibly have a multiyear investment cycle and on the back of that, GDP numbers could be about 6 percent for a long period of time. So that could have been supporting the market in spite of the negatives on one side of bond yields/interest rates moving up, at least we have the positive story on earnings looking reasonably good at this point in time and a reasonably strong medium-term narrative for India."
Prasad believes that the worst might be over for the infrastructure space. He said, “If we look at the revenue numbers for most capital goods companies, they have been pretty much stagnant for the last 10 years. If you look at Larsen and Toubro (L&T) and their core business, their revenues have about 6 percent for the last decade. Clearly, the Indian economy has grown significantly over this period and it looks like we have the ingredients for a multiyear investment cycle. Private sector capex should pick up which was languishing at about 11 percent of GDP for the last 10-12 years; corporate balance sheets seem to be in a good shape, clearly India is emerging as a good investment destination.”
“Moreover, if global companies continue to follow diversification strategy, China plus one etc., India could actually become a pretty big manufacturing base going forward. The government has done all the right things. So one is quite hopeful that you could have a manufacturing capex cycle and our government balance sheets seem to be in decent shape, which could mean that government spending on capex will continue at the central level and state levels and that has been essentially the bulk of infrastructure investment in the country,” said Prasad.
“So all put together, I am quite positive and L&T is one of the best players here. If you look at the value of all the subsidiaries, they have done very well. The stock is actually incredibly cheap and looks pretty interesting at current levels. I am reasonably okay with this investment cycle going forward,” he mentioned.
According to him, banks have done alright so far. Prasad said, “If you look on a year-to-date basis, they (banks) only trail the Nifty50 Index by about 3-4 percentage points currently. So that is quite okay. Having said that, things are looking good. Provision numbers are not going to surprise on the negative side, most banks have built sufficient provisions for the problems on the retail lending book, MFI, personal, unsecured loans, and the MSME part. The corporate loan book is actually holding up brilliantly when it was really the cause of the problem from FY17 to FY20.”
“So, if credit growth picks up and the market has more confidence that we are in for a good investment cycle, maybe you could see rerating for some of the banks going forward,” said Prasad.
He is also of the belief that there is enough space for both, traditional banks as well as fintech companies to co-exist.
For the full interview, watch the accompanying video