Go for cement; copper could be a big bet: Trivedi

EVs might be a bigger reality five years from now but in the next 12 to 24 months, I do not think that is really a big deal, says Gautam Trivedi, Co-Founder & Managing Partner, Nepean Capital. Is it a good time to buy a Sobha or a Godrej or Indiabulls Real Estate in this fall or the classic name like Godrej Properties? Companies that are focussed in residential real estate like Godrej or Oberoi for the most part, would be interesting and given the work from home environment, especially vis-a-vis the tech companies. They are the first adaptors of video technology and so on. But if that persists post Covid, companies that are focussed on residential real estate will do extremely well. But one should actually look at the cement stocks because that is a great proxy to play real estates in India. Praj has done very well. There is a trend towards increasing ethanol blending into fuel which means ethanol makers, ethanol machinery suppliers and ethanol blenders will increase. It is a small but powerful theme. EVs and the entire migration towards clean fuel help this theme, Is there anything from the EV space or the clean fuel space on your radar?I am glad you brought that up because I was reading an interesting report by a leading investment bank over the weekend where they are saying that copper is the new oil and that just took me by surprise. The report says that it is a play on renewables and alternative energies like solar, wind and geothermal. They are saying copper apparently has the necessary physical properties to transform and transmit these forms of energy to the end consumer. Over the last 12 months, copper price has gone up 80%. This report says that demand for copper will rise by as much as 600% by the year 2030 and that could be an interesting way to play it. I can think of Hindustan Copper. I do not know if there are any other companies that are linked to the copper cycle but it is definitely worth exploring. There is this proposition that EV will lead to disruption of the existing combustion engine. But whenever this disruption happens, do you think it will still be dominated by the existing players like in IT space? When EV takes over and the combustion or ICE engine slows down, will the Marutis, the Mahindra & Mahindras and the Tata Motors be the winners?Yes a lot of Indian companies and, of course global companies will dominate. I was looking at the latest Mercedes-Benz. It is very high end, but they have come out with a S class car which is very expensive but it can now do 770 kilometres on a single charge which is a lot more than what Tesla can do. So the point is that technology is going to keep getting better and better and companies in India are smart enough to make investments and focus on this area. Mahindra & Mahindra has gone on record and said that that is going to be an incremental focus for them. But that is still some time away. I do not see that becoming mainstream just yet. Let us look at the number of cars that are sold globally within the EV space. It is miniscule at less than 2%. So that might be a bigger reality five years from now but in the next 12 to 24 months, I do not think that is really a big deal. There are very few ways to actually play that today. So if you are positive on the auto sector, you can buy a Maruti anyway – be it EV or not — today. What is the outlook on Q4 earnings? How do you see the Covid wave impacting overall earnings? Will you be reducing your earnings estimates?Yes we would. What was looking like a fantastic quarter has gotten interrupted. We have had a pretty good fourth quarter based on what I have heard based on channel checks for fourth quarter FY21. This quarter was looking good until the new outbreak and that seems to be getting worse by the day. We have to see how the government — both central and various state governments — respond but there is going to be at least a minimum one quarter if not more impact on earnings and consequently on GDP and a whole host of other downstream parameters. That is a concern yes and that is where the Indian market would offer an opportunity to buy on dips. We remain largely positive for the next 12-15 months. And do you like what you have seen and heard when it comes to policy initiatives on the capex cycle, on the PLI scheme, the infrastructure and the capital goods sectors? Is it enough to offset the kind of pressures that they saw due to the government induced lockdowns?The answer is definitely yes. I think the government has clearly bent backwards to get the PLI scheme off the ground and they have gone sector after sector and announced a slew of initiatives. It is all very good. We just have to see evidence of that panning out. On paper,, it obviously means huge capx is coming and it is obviously going to benefit everything underneath that whether it is the demand for steel, cement or capital goods. There is a massive fiscal stimulus as well as infrastructure spending by a host of countries globally including India. All that is great but my bigger concern is how is the government going to pay for this? I appreciate the fact that the FM and PM are very focussed on infrastructure spend but that has to be backed by revenue and while tax revenues have improved significantly as far as GST is concerned, a huge part of the population that should be paying income tax, is not paying taxes. Second, of course, is privatisation and asset monetisation. There has been a lot of talk around it but let us get real about what we ended up doing in FY21. We did just over 10% of the target. Targets have been lowered to Rs 1,75,000 crore. We do not have a number on asset monetisation as yet. If the government gets serious about that and starts selling assets, there is a huge amount of private equity money that is waiting to snap up some of these assets. I think the government has a pretty good shot at achieving some of these capex numbers as far as infrastructure is concerned but they will have to start working overnight to sell assets. That is really going to be the key to how fast they move on because we only keep hearing about committees being formed and policy measures being undertaken but let us see some action now.

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