What is Religare Capital betting on in the long-term?

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Q: Giving an example of multiplexes, Adlabs and Fame who started this business, who pioneered it and the business grew, are both out of the business. So perhaps at this phase of India's growth you have to start looking at stocks rather than what the sector is going to do because some of these guys are going to disappear for sure. Could you pick two-three companies in whichever sector you like, whether its IT or whatever, where there are going to be standout and perhaps get even more business? Essentially are we going into a winner takes all kinds of model in India which is what we have to start looking at seriously rather than India's growth?

A: The example that you took of the entire multiplex arena, if you look at the return ratios these are somewhere in single digit. So market is going to pay premium for return ratios, the companies which are earning ahead of their cost of capital and the market will continue to pay premium on the execution. So if you have to put these two things in perspective Indian IT would be a standout winner, you will not find balance sheets better than in Indian IT companies perhaps anywhere in the world.

Second, return ratios will continue to attract return ratios in excess of 25% will continue to attract capital. Third and important thing, rupee appreciation, which was a clear concern a couple of months back. There was a consensus on rupee going to 42-43 that doesn't seem to be playing out because you have not had that greater response to the public sector undertaking (PSU) disinvestment and that's how rupee perhaps is most likely remain in the 45-47 range than perhaps going to 42-43. So these are the themes and these are the structural positive for the sector.

We think that companies like Patni Computers , in the second rung IT space, and largecap IT Infosys ; these are the companies which will meet most of the parameters of the investment.

Q: What about infrastructure, we do not have infrastructure index so to speak, its only capital goods and there picking off is very distinct in fact it leads the pack in terms of underperformers. But is infrastructure, separate from capital goods a great story?

A: Basically infrastructure for India is a decade long theme rather than a year-two year kind of a story. Here also if the men are to be separated from the boys, you will have to focus on implementation and execution. The companies which show that credential in terms of execution will continue to get a premium. For e.g. IVRCL , Nagarjuna Construction where order book visibility is far in excess of couple of years going forward and execution has also been on track for most of the projects, I think these are the companies which will continue to run for a longer period of time and investors would continue to love these stories.