India continues to remain a bright spot in a current instable world and the interest is significant and deep, says Ashok Wadhwa, Group CEO, Ambit Holdings. People do believe that valuations in India have moved up fast and stocks have become expensive and the entry points are high, but from 3-5 perspective, long-only investors believe there is enough value over the long-term, says Wadhwa from the sideline of the Ambit Conference in London.
According to him, although financials and consumption continue to remain significantly attractive for investors, for the first time participants are also showing interest in infrastructure and companies considering capex cycle.
Showing faith in the government, he says they have vision and are forward thinking. They have the ability to take transformational steps. So, this move of consolidation in the banking space is good provided strong PSU valuations are not impacted by this process. NPA is the biggest road block to the consolidation process but one of the ways to tackle this issue could be consolidation itself.
However, the government must allow the consolidated banks to raise enough new capital for the process to be a success, says Wadhwa.
With regards to goods and services tax (GST), it will surely create immense value for high quality companies in the coming 3-5-10 years but in the next six months it could be chaotic as supply chains get impacted. Companies in near-term could lose revenues and demand could be less.
Talking about farm waivers, he says government needs to be cautious not to introduce too many populist measures that affects the economics of the country or the financial prudence.
Below is the verbatim transcript of the interview.
Ekta: What is your broad sense that you have been getting from your clients given that the market is at all-time highs and valuations are not cheap?
A: If I look at the interest at our conference here, both from the quality of corporates that are participating and then the quality of investors that are attending, the interest in India continues to be significant and deep. People continue to believe that India is a bright spot in what now is an even more instable world. We know what happened in the United Kingdom in elections last week, we know the on-going struggle in the United States, and I would like to believe that the interest in India therefore is high.
Obviously people believe that valuations have moved fast, that stocks in India are expensive, but again, if you ask them a question from a three, five, to 10 year perspective, the long only investors continue to believe that the entry point may be a little high, but there is enough value in the Indian market going forward over a long period of time.
Surabhi: If people want to enter, where do they want to be in India, which are the sectors which are sort of hot where you are hearing a lot of discussions?
A: I think the favour continues to be banking financial services, and the consumption story. Those are clearly two big pockets which continue to attract interest in investment. I am starting to hear for the first time people wanting to look at infrastructure and people wanting to look at companies that are considering a capex cycle which I think is truly heartening because I have long said that we need to see investments going into infrastructure and in the capex cycle to believe that India’s growth over a long period of time is now sustainable. Just consumption led growth can take us only so far, and not beyond that.
However, at this conference, I am seeing interest for the first time both in investments in infrastructure industry as well as investments in capex cycles. I am also hearing a lot about will government do enough in terms of public sector banks. There seems to be decent amount of appetite to want to invest in select public sector banks provided government raises more capital and I think that again is a very positive sign.
Ekta: Talking about PSU banks, there are a lot of reports of possible mergers between them in the next couple of months. You have been a banker yourself, do you expect something big bang in terms of a merger to happen within the PSU space?
A: This government has shown vision and forward thinking. This government has shown ability and desire not to accept status quo, but to take transformational steps and therefore I would believe that it is well within the ambit of this government to be able to initiate the process of consolidation within the public sector banks. What one needs to be cautious about is how do you consolidate and make sure that the few strong public sector banks that we have, their valuation and their value does not get diluted because they have to carry relatively weaker public sector banks.
Therefore the nature of the consolidatee and the characteristic of the consolidatee and what impact that consolidatee has through the consolidation process on the consolidator is going to be a very vital element in terms of creating vitality within our PSU banking system. However, without doubt in my mind, the Finance Minister is committed to finding a solution, and I have no doubts that we can expect something transformational in the near future.
For full interview, watch video...
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