India has potential to lead growth in a post-Covid world: Murarka

Technology and telecom are the clear outliers in terms of being the significant beneficiary of this crisis, says the Founder of Renaissance Investment Managers.What is happening with the market? It seems like the market has completely chosen a different beat and all those March lows are way behind us?Absolutely. The financial markets globally are significantly ahead of the real economy. There is a significant wedge that exists between the real economy and the financial markets. What is at play really is the kind of liquidity that has been infused in the market by central banks and the fiscal stimulus that has been induced into the real economies by governments. As a result, markets are significantly ahead of the real economy. Markets are trying to look at the post-Covid world and the markets are looking forward to a far more normalised world as it existed pre-Covid and they are trying to price that in. While in India, we have not reached the peak, globally at least the phase-1 has clearly peaked for Covid. Whether we will have a second phase or not towards the later part of the year or not, the jury on that is still not out. But there is the magic of liquidity which the Fed and other central banks have done. So from an investors point of view, the silver lining is in the post-Covid world. My expectation is that India on a relative scale will emerge as an economy which is relatively stronger than what it was in the pre-Covid world; which effectively means that if we execute well, then probably India can lead the growth in the post-Covid world and in that context, one should invest into some of the domestic-oriented businesses and especially businesses which are leaders across sectors.Do you want to give us any specific names or themes or sectors?We have not lived through these three months but we have been through two years of bear market. Everything that happens in a bear market usually spans for 12-24 months but the same has actually happened in this two-month period and it seems like we are back in a bull market. So we have lived through a two-year phenomenon in a matter of two months. Having said that, there have been significant dislocations that have happened in the real economy. If you look at the domestic economy in India, there is a significant dislocation across businesses. Autos or retail are obviously businesses which will endure some pain for the next two or three quarters but the idea is to look at these sectors because these sectors will come back as the economy normalises; so focus on leaders within these sectors. Apart from that, technology and telecom are the clear outliers in terms of being the significant beneficiary of this crisis because all the telecom and bandwidth consumption is going to increase or has already increased. Likewise, our per capita consumption or the use of technology in our everyday life has already gone up and will only keep growing exponentially going forward. So I think those are the few sectors which look pretty interesting.What is your view on aviation? I have very unsuccessfully tried to make money out of this sector in the last 15 years and every time I have failed miserably to an extent that I am really scared of this sector now. As far as this sector is concerned, there are so many external variables which are outside the control of management of any airline that the only thing the management can control in this business is very high quality and cost conscious execution. Apart from that, they are exposed to rising fuel prices and they are exposed to currencies and global economic shocks. And given the kind of dislocation that has happened in the economy at this point of time, there are so many other attractive sectors where you can find many attractive investment ideas. I would rather skip or not focus too much on the sector. Having said that, within the sector, obviously Indigo is one of the best positioned players because they have the strongest balance sheet and the highest market share. I am sure within that sector also, we will see some casualties, which effectively means Indigo is going to increase their market share going forward. Would you buy a PVR right now?That is a tough one. I believe in the whole philosophy that human beings are social animals and sooner or later, we will get back to our usual lifestyles because we cannot live without our social activities. So I think this business has a long-term future. So whether one buys it now or a few months down the line; whether it’s 10% down the line or 10% lower, I am not sure about it. But I think this business has a long term future and that is for sure.Within the financials, apart from the handful private names, from a broader financial pie, the smaller NBFCs or the transport finance names, is there anything that is looking attractive to you at current levels?While it has been just two or three months of lockdown, it will lead to massive consolidation across sectors. Sector after sector, we will see a massive consolidation. Now that consolidation can either happen through larger players gaining market share or growing faster than the smaller players or through mergers and acquisitions. One thing we are very clear is, we are focussing on investing in companies which have very robust or resilient balance sheets and invest into sector leaders. I think it is not the time to venture into smaller or marginal players because the leaders with their resilient balance sheet and dominant presence will have an edge over the marginal players or the midsized players. You are better off focussing on leaders in every sector including financials because one thing is very apparent in financials; we will have a wave of NPAs, which effectively means there will be a massive round of capital raising that all the banks and NBFCs will need. You have already seen one or two banks doing that and I think many more banks are in the pipeline. The larger banks will find it much easier to raise capital and investors will be willing to give capital to larger banks because they will have confidence in those larger lenders, which effectively means because of lack of adequate capital from the smaller lenders, they might be constrained in terms of their growth for some time to come. We are better off sticking with large names for the time being.Wanted to get your take on some of the auto ancillaries as well. There seem to be quite a few positive brokerage recommendations coming in. The likes of Motherson Sumi are gradually resuming normalcy in operations as well. How are you looking at the overall chain of events and for auto ancillaries in particular, what is it that is catching your eye?We are looking at all the domestic-oriented stories, which effectively includes autos and auto ancillaries but within that also, we are applying the same principles. We are looking at companies which have very robust balance sheets and have either no debt or have debt which is manageable. We are looking at companies which have a reasonable presence in the domestic markets but at the same time have a global presence as well because the global economy is opening up much faster than India and is normalising or probably would normalise much faster than India. The kind of fiscal stimulus that we have seen from some of the global economies is far higher than what it has been in India. So I think there are some of the broader players including Motherson and some of the other plays which are at play on both domestic auto recovery as well as on the global recovery. So look at leaders which are diversified across both domestic markets and global markets. Clearly, names like Bharat Forge and Sundaram Fasteners look pretty attractive to us.

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