There was a time when everything which had a prefix or suffix Bharat or PSU did well. It had to be a PSU, it had a name, it had to have a name Bharat either at the beginning or at the end and that stock was doing well. We saw a massive wave of buying in PSUs. Where are PSU stocks headed, now that we have seen a fractured move there or a fractured price action there?
Shreyash Devalkar: Since one year ago, the market has actually matured beyond the point the themes per se, barring the recent defence theme, broad themes – be it PSU or housing or anything. Narrow themes are very difficult. Because the market got discovered almost a year ago and has taken cognisance of all the good things in many sectors irrespective of their market cap, their sector and the sector associated risk.
In this context, many PSUs have done well. Defence PSUs have done well and there are reasons for it. Many such PSU segments based on whichever sectors they are operating, have been reasonably valued by the market in respective sectors. From here on, just because of that, a theme per se may not be wise to chase. It is better to go individually even in the PSU pack – whether it is banks, PSUs or capital goods and we have to be very choosy rather than chasing a particular theme.
Last time you connected with us, you said that you have been adding to some of the financial services names with select pharma counters doing well. We have added to those names as well. Recently, any other sector where you have initiated a buy or added on to your overweight stance.
Shreyash Devalkar: As you highlighted, six months ago and even three months ago, we have had that view. Currently, whatever we did in the last two-three months, indicates that generally it is stock picking now because there was a sharp underperformance at a point in time in financial services. That sharp underperformance is partly covered, not entirely, and for it to get covered entirely, certain things need to get played out like deposit growth, and growth on the credit front. We are getting surprised on that especially on the retail credit growth front and without any incremental NPA related issues.
So, considering that choosing a sector is difficult today, it is better to stick to individual names in individual sectors rather than going for one particular theme or sector and in exports as well. Because of tariffs, certain export-oriented companies are getting hurt. At the same time, we have certain companies in industrials which are doing good and some are facing margin pressure and hence everywhere one needs to be trading carefully based on what one is playing rather than broader underperformance, outperformance themes.
I would like to draw your attention to one pocket where growth is strong, but valuations are a function of what everybody perceives. It is the digital space. I can endlessly argue that we should value Zomato on cash flow or on GVA. You can argue back and say that it is a tech company; I can say it is an IT company. Where is that space headed?
Shreyash Devalkar: We classify such companies as not only quick commerce or delivery-oriented but also as platform companies. For me, even an exchange is a platform company. Now, whether the basic model is loss making is the key differentiator in some platform companies versus others. The loss-making part of it and multiple points in time we have seen in history and not only in such cases that where the industry is heading in eventually is very important. If the industry is heading towards consolidation and leading to a near monopoly or duopoly, in such cases definitely one makes money over a period of time, one needs to bear the uncertainty. Actually, it is not the right thing to compare, but a similar such case has been in telecom in maybe six-seven years ago, the ROEs of the sector were very low, but eventually that sector got consolidated and now you see wealth getting created. So, one needs to bet on something that can last, a company that has a strategy as well as deep pockets to last longer. So, this has been the key differentiator of successful investment versus non-successful investment during tough times of sectors. There are multiple sectors which are going through such problems. One needs to be really choosy about which companies you want to bet on because everyone is not going to be winners. So, that is why I give an example of telecom. Everyone was not a winner and only one or two became a winner out of it, so carefully picking those and backing those is very important.
