FIIs have started nibbling in but they are still risk averse at this stage: Sudip Bandyopadhyay

Sudip Bandyopadhyay, Group Chairman, Inditrade Capital, says FIIs show interest in India due to positive domestic factors like declining inflation. The power sector is seeing strong demand with opportunities in generation and finance. Real estate is thriving, especially in NCR. FMCG awaits demand growth. The cable segment faces heightened competition. Bandyopadhyay has a positive outlook on SBI and gold loan companies.

Just looking at the FII trend and the buy figure since March 20th. One is wondering whether they are here for good.
Sudip Bandyopadhyay: Definitely FIIs are interested in India. A lot of things have worked in India's favour. Inflation coming down in India is definitely a positive which clearly indicates that RBI will be in a position to cut rates which should again give impetus for growth in the economy. So, domestic factors are working all right.

Of course, the global issues are huge and in everybody's mind. We were just discussing tariffs and April 2 is around the corner so one has to wait and watch and see what is going to happen on that day. But at the end of the day, impact on India will be limited, direct impact will be limited because India is not a very large trading partner of US and vice versa. However, if there is a global trade war which escalates beyond control that will affect global growth and that in turn will affect India.


So, may not be directly but indirectly India will get impacted. So, FIIs are waiting and watching and they have started nibbling in is what I would say but they are still cautious and kind of risk averse at this stage that is what I would say.

I wanted your view on the power space because that was one of these narrative go-to sectors last year. We saw a correction play out in the power theme. Now, this is one of the sectors that has seen a good bounce back with the rest of the market. What is your take now on the power space? Is it at an attractive level? Should one go ahead and buy some of these counters?
Sudip Bandyopadhyay: Well, absolutely. We have been positive on the power sector for the last one-and-a-half, two years and we maintain our strong positive view of this sector. There is a structural change happening as far as power in India is concerned. The demand has gone up significantly and every segment of this sector, whether it is power generation, transmission, power financiers, power ancillaries, power distributors, everywhere there is a strong demand and there is enough and more opportunities for expansion and growing capacities and catering to the demand of the enhanced overall power demand in the economy. We continue to remain positive.

NTPC at current levels is definitely a good buy from a long-term investor's point of view. They are the leading generator of power in the country, have fantastic backward-forward linkages and a potential to significantly move up from current levels in about a year's time. Look at the financiers. The amount of incremental power capacity which needs to come up over the next five years is huge and the financing demand for that cannot be met by banks. Obviously the power financiers will play a significant role. Whether it is PFC, REC, or even IREDA, it deserves a look and it is worth definitely buying from a long-term perspective.

What is your take on the real estate pack? The sales have not been that great of late, but if you look at the luxury market, that one is booming, at least in the NCR region. That’s what the reports are indicating. What is your take on real estate and how should one play this theme?
Sudip Bandyopadhyay: You hit the nail on the head. Luxury real estate is doing really well, particularly in NCR and obviously DLF is a buy. The kind of inventory they have, the land bank they have, and the kind of potential they are sitting on somebody looking and building a long-term portfolio, wanting a real estate exposure, DLF definitely should be part of that portfolio. As far as other markets are concerned, the way things are moving, I do not see too much problem in the real estate segment.

Also, remember, interest rates in the economy are coming down and they will continue to come down for some time and whenever interest rates come down, it benefits real estate directly as well as indirectly. I am not in the camp which believes that there are going to be some challenges in real estate. We are in a positive cycle for real estate, and we are probably in the mid cycle. The rally has many legs to run even now. Yes, there will be dips and volatility in between, but there is absolutely nothing to be afraid of as far as real estate is concerned.

When there is a sharp market correction, when there is a slowdown in the economy, real estate also shows a bit of weakness, but we are on a good wicket if you consider medium to long-term.

Come next month and the entire income tax saving as well is going to flow in. Is that already priced in by some of these FMCG and capital goods players or do you think there could be some more headroom in these segments?
Sudip Bandyopadhyay: I think that move is definitely behind us. There are concerns around how monsoon is and how demand is going to pick up. There was some commentary about the consumer durables sector which does not paint too good a picture. The demand has not picked up that much and we will have to wait for the demand to pick up.

The real challenge for FMCG as well as consumer durables was demand. If and when demand picks up, this segment will come out. Yes, the tax benefit given by the government in the last budget will percolate down to individuals in the next fiscal and I am sure consumer durables will benefit out of that but there is a lag for that to actually fructify on ground. We have to wait for demand and I expect the interest rates to come down and also the expectations of a good monsoon should cheer the FMCG and consumer durables in late Q1 and Q2.

I want to pick up on the entire wire and cable segment. Now with the Adani entry into the space and the correction playing out in the entire segment, can any of them make it to the core portfolio or would you say wait it out, this could very well be the Birla effect on the Asian Paints kind of a story and we may see a prolonged derating for companies like Polycab, KEI, or RR Kabel.
Sudip Bandyopadhyay: As far as the cables and wire segment is concerned, I will be extremely cautious. We are probably seeing a replay of what happened in the paint segment with the entry of Aditya Birla Group. With both Birlas as well as Adanis entering the cables and wire space, the competition will be hotting up significantly. They have declared that price competition is not the way forward, but I do not believe that will be followed on ground when competition starts once the facilities are ready.

So, one needs to be cautious in the existing wire and cable players stocks as they were not quoting at a cheap valuation. They were quite richly valued. A bit of correction was anyway due. And both two announcements have set the cat among the pigeons. We have to be careful here. There is no point trying to do value buying here yet.

Since banks and financials at large seem to be the consensus trade, what is your preferred list within NBFCs and the banking pack?
Sudip Bandyopadhyay: As far as banking is concerned, I like SBI. A lot of things are going well. Overall credit demand is strong. Asset quality has improved. They do not have too much unsecured or microfinance exposure to worry about. Subsidiaries are doing exceedingly well. And valuation-wise, it does look attractive. Of course, interest rates are going to come down and that does help efficient banks for a period. All put together, SBI definitely is a good buy at current levels.

As far as NBFCs are concerned, I like the gold loan companies. Recent RBI change has probably put a slight disadvantage in terms of cost when the portfolio sale by NBFC gold loan companies will not be treated as priority sector loans in banks' books, so that was a bit of a dampener in terms of cost, but otherwise both the gold loan NBFCs, Muthoot as well as Manappuram, should be looked at, the demand is robust, gold prices are zooming, and they have gone over that regulatory challenges and regulatory issues which they were facing. So, both of them deserve a look from a portfolio point of view.

What is your view coming on some of these counters that have reacted to the developments when you talk about the EV battery manufacturing for the likes of Exide or Amara Raja. We speak at length when you talk about two-wheeler players, but when you talk about auto components, this one is a very critical and crucial one.
Sudip Bandyopadhyay: Absolutely right. And if you were talking about EV, the most important thing is a battery and that is what it takes the vehicle forward and this is a very critical component for an EV. The Government of India is trying to do the right thing by providing incentives for domestic EV battery manufacturing and it is on the right track.

Of course, both Exide as well as Amara Raja Energy are setting up large plants for EV battery manufacturing. They have the skill sets of battery marketing and acting as OEM for the IC engine companies. I am sure they will, with a bit of tweak, do a great job as far as EV batteries are concerned also. And with all these incentives and exemptions on import of capital goods for EV battery manufacturing, things will start looking even better for both these companies. I have been positive on Exide for a long time and now I am positive on Amara Raja as well. So, both can be looked at from a long-term perspective, that is the future.