Today, 8th November also marks the fifth anniversary of demonetisation. It also made Paytm a household name as the moment was seized. Have you applied for IPO? Also, Nykaa and Policybazaar listings are out this week?
I would not like to comment on any specific IPO but I would say there is opportunity in India with these new economy companies. India is a very old market in terms of age of listed companies but if we go back about 15 years in history and look at Chinese market from 2000 to 2005, when new age companies first started coming in Chinese market and these new economy companies The kind of returns the Chinese market has given with the listing of the U.S. is very clear. What is worrying is the valuation at which these companies are entering the market.

What has changed between 2000 and now when we saw this type of valuation? The last time we saw such valuations was in 2000, at the height of the dotcom bubble. At that time IPOs in India did not see such companies. Listed companies hit 100 times the price earnings and they never reached those levels again. But overseas, over the past 20 years, the big deal was that private equity was held by these newly entrenched companies for a very long period of time. That’s why he is justified in being a unicorn.

Now that they hit the public markets, it will be very important to see if these prices stabilize at these levels. Because of the huge demand we’ve seen as a cosmetics e-tailer that will melt on listings, we’ve seen 81 times subscription numbers. But will it be like a food service delivery player where prices have stabilized after that and then prices wait for real earnings growth to justify higher valuations?

So, the new economy is good, China’s example is great, India’s demographics are great, private money is flowing in huge numbers – $43 billion coming in so far this year, very good, secondary market IPO 10 billion Dollars are coming in over. Well then five very good things, what is not so good is valuation.

What about ? It has made some recovery but the stock is currently down around 10.5% in trading.
The banking act on trust and the subsequent whistleblower news in the media has prompted many investors to ask, what exactly is happening? Is there evergreening and clarification from management that came about over the weekend of a technical glitch that caused 84,000 loans to inadvertently get credited into debt debtor accounts? This did not go down well with the market and basically investors seemed to have more than meets the eye and we saw such a decline.

Overall Indian banking is very well regulated. RBI is one of the smartest regulators. Being a banker for almost three decades, I have witnessed firsthand the quality of RBI supervision. Despite this we faced NPA crisis but this kind of thing would be very difficult and with a bank of scale of IndusInd, it would not go unnoticed in the supervisory audit of RBI as they take a complete list of all outstanding loans and then a Using a system generated random number generator, the loans are taken out at random and then they are done very systematically.

Certainly large loans are seen through 100%; In the case of small loans, a random number is generated that ensures that the sample size is 100% characteristic of the population. Therefore, no bank management will do anything as I wish as an outsider. But as a seasoned banker, I doubt whether there will be much truth to it and RBI will be well aware of it.

Let’s see if this gets further clarification, but private sector Indian banks are largely doing well except for the odd Yes Bank. But the top four-five private sector banks are doing very well. Eventually it will be absorbed and we will see more clarity on this and I hope RBI will do the same. There was a time when someone tried to run one of the top three private sector banks and at that time Mr. Chidambaram came on TV and said that he had seen the books and there was nothing in it.

At such times, it may be good for the regulator to step in and share with the wider investing public that we have seen the books and there is not much of it. This will prove to be very helpful in alleviating the fear among the investors. So, I’d say there’s probably not much to it; Maybe it’s a system glitch as stated by the management. We don’t have the data to trust the management and thirdly, the Indian banking sector is looking very good. I would say continues to be the top pick in terms of financial sector. Look every fall for financial deposits and with the economic recovery and trading reopening, the first takeoff will be financial sector stocks.

What’s your order when it comes to these big banks?
The turnaround cases of formerly problematic corporate loan portfolios in private sector banks are now changing very rapidly. So they will be the top picks, like ICICI Bank and Axis Bank. The second top three public sector banks will be SBI, Bank of Baroda and Punjab National Bank. We are seeing that the problem of NPAs is finally getting resolved to some extent there.

The third would be a special case where there is a disappointment that there will probably not be disinvestment in public sector banks in this financial year, but next year some of these small and medium scale public sector banks may be offered for sale to the private sector. . And the government is going ahead with disinvestment.

Interest may be shown up to the budget in these special case cases. Everything will depend on what the Finance Minister says on February 1. Last year, he had set a target of disinvestment of two to four banks and this could lead to a fire in these stocks on February 1. So that would be the pecking order; Top tier private sector banks, then big public sector banks and then special case cases where you will get opportunity.

The other interesting part of the financial segment are, of course, mutual funds, insurance. I will keep all of them separate but in NBFCs, we are looking through a pecking order and there I would say that both personal loan as well as home loan NBFCs are going to do very well. Microfinance is still a problem, although recent figures are starting to look better. But I’ll wait a quarter to see the microfinance numbers before pitching in. You have lots of options from very well managed, well run companies. Why go down the credit chain when you have enough opportunities at the top end?

In the realty boom, subsidiaries are going to do well despite pressure due to rising raw material costs. Will you see the cement?
Yes, pretty much and we’ve been saying for a long time that suppliers of the real estate boom will do very well. Cable companies, plywood companies, tile manufacturers and cement companies. The cement sits on three, four large volumes; Domestically, a large proportion of cement is used in rural housing, which is being fueled by the rural economy as well as government housing schemes and the money being poured into all of them.

Cement goes into construction, the infrastructure industry and even in the concreting of roads. Shri Gadkari has spoken on this several times in the context of getting better prices from cement majors for NHAI and road builders. So, despite the rise in coke prices over the past year, margins are being impacted somewhat by volume expansion and the underlying operating leverage coming post-Covid, when the contraction occurred. Now we are looking at expansion.

Again, these companies have strong balance sheets and have been able to sustain themselves in 2020 at the height of COVID and now we are seeing volume growth. Today a lot of this price change is expected to have pricing benefits in anticipation of demand returns to the economy – from both rural and urban areas, from both infrastructure and construction. In all this, cement will have a natural advantage. It looks like the earnings of cement companies are picking up well and the stocks are reacting on the same expectation.