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“I speak to some of the experts, they say that this summer we are already hitting peak capacity in thermal as we speak, especially during the peak hours and we are under-invested,” says Sridhar Sivaram, Enam Holdings.

And it is a very large pool as well, which is why I wanted to understand, while people are obsessing about defence, railways, that is a discovered story. Where do you see value in the table where you feel that it is still under-owned?
I would say that whether it is under-owned or not, it is debatable. But power looks like an interesting space. I mean, if you look at India’s power capacity, if you look at, say, let us take solar or, say, wind, solar the capacity is expected to double in three years. Wind is expected to double in four years. Even on thermal, we are expected to add almost, say, 60-70 gigawatts in the next three-four years. And the entire eco chain could benefit. We have under-invested in power, especially in thermal, if you see, over the last three-four years and we could have shortage.

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Because I speak to some of the experts, they say that this summer we are already hitting peak capacity in thermal as we speak, especially during the peak hours and we are under-invested.

So, what will happen is the entire ecosystem will benefit. One will have to investigate which one does well. But I think if we are going to add so much capacity, it takes me back to 2003 to 2007 period, when this entire ecosystem did very well.

We could see a repeat of that. We could see irrational exuberance also in that. So, it is for people to do their own homework and buy what you would want to.

And if I can extend that point further, you think about 2003 and 2008, when the thermal capacities were getting created. There were companies which were giving thermal capacity solutions, engineering companies, turbine companies. Now, I think only one or two names are left who are actually genuinely making equipment for thermal power.
Yes.

So, not bet on generators, but bet on the nuts and the bolts.
Yes. So, the nuts and bolts, it is also distribution. So, it does not end there. So, you need transformers, you need wires. So, it is a whole ecosystem. I think there is a lot, I mean, what you are saying is exactly the way we are thinking that look at the entire ecosystem and we are going to see a boom in this segment.

So, since she asked for which is the segment where you could see a lot of activity, if this were to play out, then the entire ecosystem will benefit.

We have seen a typical pattern at play, markets rally ahead of elections, they fall after elections. Will 2024 be different?
As I said, we have not seen any rally in the last four months.

Even December included.
Yes. So, that is what I was saying. We got the rally after the state elections. So, I do not see any rally coming because I have been on the ground for the last one month to various states and I think it is broadly a given. It is a question of what is the number?

I mean, some say 370, 400. I am not in that camp. I think 320 looks more a reasonable number. But even that is very good, if you ask me.

It is broadly a given. So, I do not see a rally. So, I think maybe the rally comes post the first budget, because people will want to see what the template for the new government is.

We have seen Modi 01, Modi 02. What are they wanting to do in terms of reforms for the third term is how I would say. So, I would expect a rally, a proper rally to happen post July. It could be a rally, it could also be a shock, depending on what we get.

So, I will construct a scenario purely based on near term. Let me construct three scenarios, election outcome. Clear majority, we are talking about 350 plus. Major majority, which is closer to 400, and thin majority, which is like 300, 300 plus. I am not even using the word two, I am using 300 plus consciously. How do you see market reacting in all these instances?
I do not think it will react too differently, because 300 plus itself is a fairly decent number.

That is home, kaam ho gaya.
Yes, kaam ho gaya. So, I think it is broadly a given right now. If I go back to 2019 also, people were not sure, at least initially it was not a given that you are going to get 300 plus. I mean, because it was a big surprise, that is why the markets actually rallied, and 300 plus gives you that much more number of seats in Rajya Sabha, so you know that you can pass tough regulations.

I think this time broadly it is given, I think markets will be more focused on what is the new reform that the government, can they push through agri reform, can they push through labour reforms, what sort of tax rationalisation are we going to expect, privatisation which has been a promise has not been delivered.

I think these are the things the market will look at. Broadly, the economy seems to be doing well. Some pockets of stress here and there. But I think once we get through that, I think the market should be fine.

A continuity of this government seems pretty likely and par for the course, like you are also saying, the count does not even matter now. I guess the next litmus test is going to be the next budget from this government. What could derail the sentiment for capital markets?
I think there is a big question mark on, there is something that they have been talking about, the previous finance secretary before leaving also highlighted this in one of his interviews that they want to rationalise the definition of long-term capital asset and that is clearly on the table.

I do not think that has gone away, which is that different capital assets have different tenures. Equity has one year, real estate has three years, REIT has I think something totally different and they have highlighted this in the past that they want to rationalise it.

When they rationalise, will everything come to one year or will everything go to three year? That is for anybody to guess. So, I think tax rationalisation is surely going to happen and we have seen in the past that some tax rationalisation happened, markets initially were a bit jittery and then we digested it and moved on I think that is what is going to happen, whether it happens in July or whether it happens next February, it is only a question of timing, it is surely going to happen.

Just in light of all of this, the capex, the manufacturing theme, we are seeing all of the development, infrastructure development taking place. Is it already in the price or is there more to go?
No, I think this is surely going to be a big theme for India. So, we are quite bullish on this entire China plus one. It is actually now going to Europe plus one, especially on the chemical space. EMS has a huge opportunity, but some of these stocks have rallied a lot and these are not quarterly companies where quarterly results will be very linear.

You could have a lot of surprises. Look at what Apple’s ambitions are. I mean, they want to do 100 billion of exports from India in the next three-four years.

It just builds the entire ecosystem. There is not much of a listed play in Apple’s ecosystem right now. But it is just the way the whole make in India manufacturing theme is playing out.

The critics say that the value add is not much, India is just doing an assembly job, but that is what happened to the two-wheeler or the auto industry also if you go back 25 years back and eventually today 95% is manufactured in India for the auto industry.

So, it does not happen overnight. So, this ecosystem comes in, over a period the value addition goes up, so we are quite bullish on this entire manufacturing.

I think the government is doing the right thing, despite all the criticism that they are getting, I think that is the right way to go.

Would you say that I am happy to own these stocks for next five-six years, five to ten years? The EMS space, so to speak.
Yes, I would broadly say yes and if you are a new investor, every year twice you get bad moments in these stocks.

Like you got in March.
Yes, so those are the times when you need to load up, provided you have done your homework and you know which stock to buy because not every stock, so there are very high quality companies there and there are Me Too companies there.

And the space is evolving. I would say that their order books are very good. Margins may not be that great. But eventually the margins will move up. It is a space to watch and you need to do your right homework, channel checks to identify the right company but the space looks very interesting. These companies will all do well. Whether all of them will generate shareholder wealth or not is a question because of the margin profile. These are not very high margin businesses. So, you need to ensure that the capital allocation is correct and they are not putting too much capital on products which are not going to do well. It is a space which will do extremely well.

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