I’d like to hear your take, if we’re going to discuss IndusIndbank and talk about what triggered it and the kind of comments that bank management has made, why the recent outperformance of IndusIndbank is notable. do you think it didn’t?
I think some of IndusInd Bank’s brilliance has certainly been lost by how they handled the IL&FS crisis and how the NPA was promoted. And after studying this company for over a decade, I realized that this company has a lot of exposure, and the bank has exposure to some of the riskiest segments of the banking industry. . They have a large MFI portfolio, they also finance vehicle financing, and they also have a jewelry financing business for the diamond industry. Now, when the economy as a whole, or that sector, is doing well, all these companies tend to do well, but when things go bad, which is when the NPA tries to improve in those three specific segments. .
So, in a way, IndusInd is like a slightly higher risk, higher return profile. And I think banks are going through some kind of a blue sky scenario right now. That’s why I think the next couple of quarters for IndusInd Bank will be very good, credit costs will remain low and demand from the sector in which the bank is located will be good. is rented to In addition, some of the major banking companies in the same industry are trading at heavily discounted prices, so I think there is some room for improvement in the price-to-earnings ratio and the price-to-book value ratio.
So, with all this in mind, I think mid- or short-term trading could rise at IndusInd Bank. But it’s not a company you want to keep for years, especially now that the banking industry is going through a downturn. For that matter, it cannot be part of a core holding such as HDFC Bank, ICICI Bank, or Axis. We also need to monitor a little more closely how the NPA is doing from quarter to quarter.
The novel coronavirus has taught us the importance of safety. The reason why people buy term insurance is because they want to protect people close to them. People buy health insurance because they want to protect their property and because they want to be sure that they will get treatment should medical needs arise. Currently, this is a long-term multi-year trend, and COVID-19 will only accelerate adaptation to this trend. But if you look at insurance stocks, they’re the worst performing stocks in everyone’s portfolio.
I think this is partly related to what happened with the last budget. And I think, slowly and steadily, regulators and governments should try to bridge things like tax arbitrage and interest component arbitrage between mutual funds, banks and insurance.
From that perspective, the insurance product becomes a little less attractive. But you’re right, I think the path to growth for these companies is phenomenal. And if they get the formula right, if they have good partnerships, if they have the right marketing strategy, if they have the technology, these I think companies can scale up pretty well. It should always be remembered that a business like insurance is a mundane great business. I think the corporate value of large private companies like LIC will continue to rise in the range of 15-25% year on year. I’m pretty confident they can achieve his low double digit improvement. their corporate value.
And I think that should keep investors interested. I don’t want to exit the insurance sector entirely or become extremely underweight. This is because the sector tends to recover very quickly, especially when the market enters a downturn.
As you said, I think the non-life insurance business should be scaled up. ICICI Lombard, Star Insurance and others expect new car sales to rise significantly as the economy picks up and the coronavirus pandemic subsides after several quarters of poor performance.
P&C insurers, I think the outlook for P&C insurers over the next two to three quarters will be very interesting.
In India, how can Indian investors participate in this entire AI gold rush? Now we have Nvidia, an almost trillion dollar company. But in India, we believe Chat GTP and AI are the future. And as a stock market investor, you need to invest in the future. How can Indian investors invest in India and make the most of this whole AI adaptation?
From a longer-term perspective, India’s IT industry is a strong option. At this time, we don’t know what percentage of these Indian IT companies’ revenues come from AI and similar products. But there was a time a few years ago when Indian tech companies started reporting the share of digital business in their revenues.
I have a feeling that in the next few quarters, maybe a year, the IT industry or companies in India will start reporting the percentage of their revenue coming from AI and related technology projects. This will allow you to instantly compare companies that are earning an increasing percentage of their revenue from AI and similar products and projects.
I hope that gives you some ideas and hints about who will be the winners in this area. So it may be a little early at this point to understand how this particular investment theme will execute or who the real beneficiaries will be, but in a couple of quarters this whole thing will be I’m sure it gives you some idea of how it works. AI Magic is working with IT companies in India.
However, I feel that many opportunities will also be seized by mid-sized IT companies. I’m really positive there. We know the valuations are high, but there is new energy in many of these mid-market IT companies. And watch how companies like Cyient are hitting new highs.
After a long period of sluggish performance, it is now catching up as before. So these are highly entrepreneurial companies, where even a small project or small acquisition can make a big difference in sales and bottom line.
When do you think Sensex will ring 100,000 bells in three, four, or five years?
For that matter, I’d say three years or sooner. I think the whole rally is taking shape. Well, markets and indices don’t move in a straight line and the upside is exaggerated every time a bull market starts, but the same applies to bear markets. I think we are making great strides in the shape of earnings, the shape of the Indian economy, all parameters. The FII trend has certainly turned positive, and we expect it to become even more positive in the future.
Trade risks, global threats, whether it’s geopolitical or inflation rates, I think they’ve all subsided amidst the accumulation of these risks. We are entering a great zone when it comes to global financial markets. I believe that if global financial markets are reasonably healthy, there will tend to be a higher proportion of inflows to India, which will certainly boost Indian stock prices. Add to this the very solid earnings momentum over the next 2-3 years, increase in domestic liquidity, and with election years approaching, we can also expect significant increases in government spending.
So I see a lot of the ingredients in place for a great uptrend over the next year and a half or so. And it’s not that it’s unlikely, unpredictable, or beyond the realm of possibility that you’ll easily get a 25-30% compounded return in the sense of the next couple of years or so. This has happened in the past, and it will certainly happen again in the future. But I think we’re going to see a nicer mid-cap rally than the $100,000 Sensex. Now is a great time for investors to have a great portfolio that can generate a lot of wealth.
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