Sridhar Sivaram Says Stay Away From NBFCs, Consider Auto, Telecom

In an equity market where no one really knows what lies ahead other than “a lot of volatility”, Sridhar Sivaram sees opportunities to invest in telecom, automobile and chemical sectors.

An equity market underperforming most other peers and lack of hope for a V-shaped recovery in growth given the government’s limited fiscal space are among the problems India faces, according to the investment director at Enam Holdings.

Sivaram agreed with most other market analysts that large companies will get larger at the cost of smaller and weaker peers. But it’s not like “one has to wait on the sidelines”, he said when asked if not investing is a better option. “The question now is what value to enter at but that’s up to the individual investor.”

Here are his views on different sectors:

Finance

“Stay completely away from non-bank lenders and housing financiers, no matter how attractive the valuation is,” Sivaram said.

If they keep getting liability shocks every two years, the business model comes into question no matter how big they are.

Sridhar Sivaram, Investment Director, Enam Holdings

There’s still opportunity in private lenders.
Their NPAs will increase but private banks are better placed to weather the storm.
They would stand to benefit under the “big gets bigger” theme.
Some banks are trading at historically low valuations.

Automobiles

Personal mobility will become the norm, he said.

People will prefer to take personal vehicles over public transport at least for the next 18 months.
There is pent-up demand and a pandemic-induced push for people to purchase vehicles.
We are getting into FY21 with a low base since sales were low over the last five years.
Stay away from commercial vehicles at the moment because there’s excess capacity at the moment.

Also Read: Thrifty Indians May Drive Used-Car Sales During Pandemic

Insurance

Sivaram didn’t sound optimistic about India’s insurance sector.

It’s a myth that India is underpenetrated. If you take the number of households as roughly 300 million and assume that only half of them are insurable, you already have two life insurance policies per household.
Insurance agents usually sell Ulips and assured returns policies. Those are savings instruments, not insurance instruments.
Persistence is low. Only half the people continue to pay instalments after five years and companies tend to make profits when there’s longevity.

Best of luck to people investing in that.

Sridhar Sivaram, Investment Director, Enam Holdings

Telecom

The industry’s average revenue per unit is likely to increase from $2 at present to $5 in the medium term, he said.

Industry revenue was at Rs 2 lakh crore when Reliance Jio Infocomm Ltd. launched. As of 2019-end, that fell to Rs 1.5 lakh crore, during a period when data consumption grew ten-fold and calling minutes grew 30%.
Our view is industry revenue by the end of this year will go back to Rs 2 lakh crore.
Up to investors on which company they want to buy into, but entire industry stands to benefit.

Also Read: Indian Telecom Sector’s ARPUs Will Rise As It Looks To Boost Customer Experience, Says Sanjay Kapoor

Chemicals And Pharma

India’s pharmaceutical sector has stock-specific opportunities, Sivaram said.

Opportunity more on chemistry side than pharma side. See slower growth on pharma side.
Chemicals has many more companies. That’s a segment that could give secular growth for next five years but keep in mind stocks have run up.

Also Read: What Indian Specialty Chemical Makers Must Do To Boost Global Share

Agriculture-Facing Sectors

The agricultural reforms announced by the government in its “Atmanirbhar Bharat” relief package, according to Sivaram, will benefit rural India a lot.

I’m positive that rural incomes will grow and feed into profits of agriculture-related sectors, he said.

Farmers now have the option to sell not just to the mandi (market) but also outside it. This should increase their income.
Now it’s possible for large companies like Reliance Industries Ltd., ITC Ltd., among others, to invest in infrastructure of agriculture, which has hardly seen corporate investing.
10 years later, we’ll talk about this reform more than any other during the pandemic.

Watch the full interaction here:

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