The market continues to develop from strength to strength. What’s the newest trigger?
From my point of view there are four triggers. The first is lowering the cost of debt for the service sector such as travel, restaurants, etc., as well as various other such businesses and MSMEs. When the locks wear off, they (companies) will come back and they will need lower borrowing costs.
The second factor is the pace of the vaccination campaign and the pricing of vaccines for the private sector. The economic recovery will depend on the pace of the vaccination campaign. The third and fourth factors are fiscal policy expectations for both rural and urban India. The execution was a problem due to lockdowns. Rural incentives are also important. I think these are the four catalysts that will determine the next stage of the rally.
What is the long-term history of TCS?
TCS is one of the best run companies. It has shown margin improvement in the face of adverse conditions due to the lockdown. Demand was robust. One of the biggest factors in improving margins will be international travel. The mix on site and outside will make a big difference in contrast to previous years. The second factor is the accelerated adoption of digital technologies, including cloud computing. The pace wasn’t there before the pandemic and now it’s not going away. Those two things will take the company higher. Sales will grow 8-10%, which is a very large number for a company of this size. Your cash flows not only help TCS, but also other group companies.
How do you see the entire cluster of power stocks? Lately this basket has been very active.
Many electricity stocks trade below book value. Take NTPC as an example. It trades below its book value because the land was locked and the demand for electricity was therefore low. Now that the economy is unfolding and demand picks up, its profits and book value will improve too. So the stock looks even cheaper. It’s pretty certain that at some point, depending on the pace of the vaccination campaign, the Indian economy will open up. So NTPC looks good. If you look at Tata Power, it’s a similar story. It’s a bit more expensive at 1.5 times its book value. There is also talk of some new guidelines that might help power stocks. But the subject of activation alone is enough to correct a certain undervaluation.
Which stocks do you find attractive in the midcap basket?
It would be the consumer names and the unlocking of trades – Crompton Greaves or Bata. These are the companies that have underperformed over the past year. As India breaks free and these companies regain importance, I think there is some decent upside potential for these stocks of around 20-25% in the next 6 to 12 months.