What is your take coming in on the auto space? Do you think this one is something that one can avoid at this point in time given the fact that you are not seeing a lot of good signs or good news when you talk about at least the registrations of the sales figures?
Amnish Aggarwal: The auto sales have been tepid you look at past two-three months, even the two-wheeler sales of select companies they have been pretty weak. But if you look at auto space in general, one needs to be very-very stock specific at this point of time.
Last year full year, the PV sales were very tepid and there are hopes that if the consumer demand picks up, if the discretionary demand gets better, particularly after May-June, then there could be some uptick in the entry to mid-level segment in the PV market which could actually benefit players like Maruti.
So, PV stocks, for example Maruti or Hyundai to some extent, so they could see some bounce back as the demand revives, but it is all depending upon the expected revival in demand.
So, as far as auto is concerned, I would be constructive on the space and one should be looking at buying the auto stocks, M&M is one of our top picks followed by Maruti. In two-wheeler space, all the companies are having their unique problems, overseas exposure or for example the sales have been tepid, but definitely if there is some pickup happening on that side which we should know over the next few months, then there could be some uptick happening there also, but for us as of now PV players they look better than the two-wheeler space.
Auto components though, you think the threat is bigger there with regards to US slapping tariffs? I mean, you have companies which garner almost 30% to 80% of their revenues from the North America region, Motherson Sumi, a Sona Comstar, etc. You think they are high risk right now?
Amnish Aggarwal: The main thing is that as of now we are not sure because as far as US tariffs are concerned when it came to even Canada, Mexico, and other, there has been changes here or there or dilutions as we go along. But having said that if the reciprocal tariffs are actually introduced, then some of the companies which are more export oriented particularly in the North American and US region, there could be some cloud on the performance of these and there could be definitely some reaction coming in some of these stocks.
Wanted to understand how is it that you are positioned right now within the entire infra/construction universe and if you are liking anything there?
Amnish Aggarwal: We do not have a formal rating on the infra stocks, but having said that, as I have been very vocal about it that the kind of infra spends which are happening in India, whether it is at the state or the central level, there is going to be enough order book for most of the companies. You look at all the frontline companies in the infra space, I will not go very deep down into the smaller names. Their order books are going to be robust. And particularly some of these companies which cater to multiple segments, whether it comes to roads, ports, marine is there, all the infra spends, hydropower is there and now even solar is coming. So, all these companies are going to do well.
So, if you look at past few years, many of these large names, top four-five names, their balance sheets are today very good, there is not much debt in the balance sheet, the cash flows are strong, so all these names will continue to do well.
And there is not much risk also because unlike last cycle when there was very aggressive bidding, the balance sheets were bad, this time around players have been very cautious in building up their order books, looking at the profitability.
So, all the frontline infra companies we are very confident about that they will still give you very steady returns from here on. Although, you look at the past two-three years, many of them have given multi-bagger return, but still it makes sense to remain invested in all the frontline infra companies.
Is there merit in buying into an MCX or IEX right now?
Amnish Aggarwal: I cannot tell the exact levels for the same, but definitely exchanges is one segment which is very attractive. You look at even an NSE or BSE, you look at MCX. IEX is a slightly different case in point because if there is some change in regulation which happens at some point of time, then there could be some risk, but for all the other stocks these are something like the structural stories where you will continue to get compounding as the volumes go up and the operating leverage in these businesses is very high. So, as the time goes by, volumes improve, the profitability is going to improve and that eventually is going to reflect in the better stock prices.
Fear of tariff, the terror, tariff had become terror, that has got diluted. Can I say that?
Amnish Aggarwal: Yes, absolutely. You look at what has happened with whether it is Mexico or whether it is Canada. And my sense is that all these tariffs actually they are being used for more geopolitical gains and it is not going to change anything as far as economics is concerned overnight. So, these are more like knee-jerk reactions and their impact will only be in the very-very long term. So, yes, some industries might be gainers or losers, but not a very major impact.
