Deepak Shenoy: Unlocking the game is only about tourism and hotels, not much else : Deepak Shenoy
Look at where we are today compared to where we were just a few months ago. Now we go to see movies in multiplexes, dine in restaurants, even book tickets to fly domestically and abroad. Things have really opened up. In light of this, how do you bet on stocks and sectors within this space?
There are several ways to play this. The airlines are not the best because they have accumulated a lot of debt over this period and are very dependent on a lot of other things like crude. This unknown is just crazy, but the hotel chains, the biggest hotel companies have done very well. I heard they were fully booked as overseas travel is relatively limited at the moment.
So in India, the restaurant, the hotels are doing well and we have investments there. I wouldn’t take too many names but the big hotel chains are the beneficiaries. I’m not betting so much on the PVR, Inox kind of situation right now because I don’t think their deal will happen and if it does, that’s a big negative for them in the longer term. They’ll just be more and more regulated and you can’t maintain those PE ratios when you’re a monopoly.
Also, when interest rates go up and all the other things come back, the auto and consumer durables sector will come back because people will start traveling again and also go back to work. It means they need transportation. We will have to see. We haven’t seen any data yet that matches it. We have automotive investments, but at this point it seems really nascent. The unlock game is only about tourism and accommodation, not much else.
Pirojsha Godrej, we expect a multi-year improvement when it comes to the real estate sector. Would you agree with the point of view? Do you expect more upside in the sector?
To be fair, we looked specifically at the data underlying the banks’ housing loans. Despite this RBI waiver which allows them to reduce risk weightings, the growth of bank credit to home loans is less than 7% per annum. This is even lower than overall credit growth which is now 8% per year. So it doesn’t look like more home loans are happening significantly.
Maybe the data will change over the next few weeks, but I’m not looking at the data. I look at the data primarily from the perspective of whether the number of home loans is growing and/or outstanding is growing at a significant rate. That’s the lowest growth rate since 2009. So it doesn’t really reflect that there’s that much activity and that people are buying houses left, right and center and taking out loans for them .
So we’ll have to temper that current excitement a bit and wait for that data to reflect those larger-scale offerings. Prices are also rising because costs are rising. I don’t think it’s because the demand is increasing. So I’m not super excited about it.
What is your outlook on the metal space given that steel spreads have recovered and there is a correction in coking coal prices?
We are not buying anything at the moment, although a number of these stocks are in dynamic portfolios. Basically, the cycle is closer to the top than the bottom. So we might see a bit more from here, but I expect the rest of this year to be at least flat or down for metal prices overall.
Temporarily, for the next two or three months, prices will remain high and so it should be a dynamic trading game. But I don’t fundamentally think these guys are going to make a lot of money in the long run. While prices on the street appear to be recovering, we are underestimating many things, including supply returning from China, with the end of the war meaning a change in how other steel producers outside of Russia begin to behave and of course demand. I think the demand is much lower in the west than we give it credit for and so I’m not very keen on metals and commodities in general