Keep some powder dry, invest rest in 4 sectors: Gurmeet Chadha

Look at the last one-year return at the shorter end of the yield curve. Even if we have not taken any duration risk, we have clocked 10-12% kind of a return in the short-term debt category which is almost equal to the Nifty return of last one year, says Gurmeet Chadha, Co-founder, Complete Circle Consultants.

Supreme Court’s directions and what does it spell for the telecom as well as baking sector?
Anyway, the market is headed for a duopoly. A favourable outcome could have been extended by a couple of years. I am of the opinion that let the event play out, we still do not know what government has up its sleeves and Idea has already postponed its earnings today. But clear beneficiaries over the medium to long term would be Bharti Airtel. Its Q3 numbers, great operating performance was led more by the African operations where the margins were almost 45%. The India wireless business continues to do well. Overall, they clocked almost Rs 22,000 crore of revenues which is a record high for them. They added about 20.7 million subscribers in 4G with this IUC charge by Jio which led to some consolidation of the second SIMs people use.

They have been very focussed on this natural upgradation of 4G, the movement to post paid plans. Their ARPU is now almost 135. My sense is this quarter it could be 150-160. So any dips in Airtel could be used to accumulate. As for related plays, the best is left for the final outcome to come before really second guessing it.

How do you approach Bharti now? Their ARPUs were much higher than anticipated in Q3. Do you think they will be able to sail through irrespective of the AGR dues which are up for payment in March now?
Absolutely. After the Rs 22,000 odd crore fund raising they did, which was a combination of QIP and FCCB, they are comfortably placed. Overall, business seems to be doing well. We spoke about how we are seeing the ARPUs inching up from 135 to 150-160. In fact, the closing ARPU while the average ARPU was 135, the closing ARPU was more upwards of 140. Their pricing, even in pre-paid, is very smart. They have kept a lot of price gaps in the daily plans which are daily recharge that gives them a lot of elbow room to raise prices further.

It will be a beneficiary. Right now, probably they would have more financial leverage had this issue been resolved more favourably. The operating leverage will now play out more in the medium term.

Spice Jet numbers look pretty decent at first glance. It seems to be quite a big jump especially year-on-year?
If I am not wrong, this is the 56-57th month of load factor being more than 90%. This quarter it was almost 91.5. Fuel being soft also is a key trigger. I think Spice Jet will continue to do well. They are adding new routes, more flights and they are one of the bigger beneficiaries of the Jet debacle.

Also, the spat between the Indigo promoters have not helped the InterGlobe cause. So, I think it is a good play. The only key monitrable is how the regulatory intervention happens. Sectors like aviation, telecom are more cash cows for the government than for the end consumers.

Look for opportunities in pharma, in chemicals, in agrochemicals and some niche consumption plays something like a Varun Beverage or other consumption plays.
-Gurmeet Chadha

We have seen a wide fluctuation in the stock already, maybe tactically one can look at it more from a medium to long-term perspective. I would be more positive on InterGlobe, considering the strong the market share it has and the fact that once the March and the promoter issues plays out, it is far more reasonably valued over the medium to long term.

Given what we are seeing in crude prices, be it the OMCs or the likes of ONGC or watching out for earnings, what is your view on the oil and gas sector?
Purely from valuation perspective, a lot of OMCs as well as some of the power utilities look very attractive with low single digit PE, high dividend yield. We have been advising clients that PSU as a pack -- be it OMCs or utilities or city gas distributors, is best played through a fund. There are a lot of thematic funds which pick up PSU names. The portfolio PE is in single digit. The dividend yield is 6-7-8%. The best play to me right now is NTPC and Power Grid, if I was to take PSU as a space followed by some of the gas logistics players and city gas distributors.

I will be a little circumspect on ONGC. I will be more positive on something like BPCL which I am very confident will go through. It is a great franchise with a huge market share in terms of product pipelines and the average productivity per pump per month sales is 20% higher than the nearest competitor. I will be more positive on something like BPCL which I know is up for sale and would be executed over the short term.

What are you making of the macro scale coronavirus scare? Any global factors that you feel the market could be factoring in?
It is difficult to take a call, especially with data coming from China in terms of reliability and authenticity. We really do not know the magnitude and the duration of the downturn. What is more important is how long will the normalisation take and I think that will have some bit of a play.

Also, the fact on the positive side is that the market is underestimating maybe the response the Chinese authorities will give including the central bank, both in terms of liquidity infusion, lowering their relending facilities below the prime lending rate and other stimulus. It is a $14-trillion opportunity.

I am saying there will be disruption, especially in sectors like textile, chemicals, auto components and electronics. One has to be more watchful for opportunities and all previous corrections seem to be opportunity and all future corrections always look like a risk. That is the difference investors have to make.

Also, keeping some powder dry in a market like this, holding on to some cash is not a bad idea. I have been discussing this and also making the point that debt in India is so under discussed and less focussed on.

Look at the last one-year return at the shorter end of the yield curve. Even if we have not taken any duration risk, we have clocked 10-12% kind of a return in the short-term debt category which is almost equal to the Nifty return of last one year. With RBI’s LTRO. there is durable liquidity. The spread between your repo rate and AAA and AA bonds at the two to three-year continues to be very attractive. So there is still some juice there. So, keep some powder dry, look for opportunities in pharma, in chemicals, in agrochemicals and some niche consumption plays something like a Varun Beverage or other consumption plays.