After decades of betting on growth stocks, Enam Holdings’ Sridhar Sivaram now sees merit in value investing in India, and more so in public sector enterprises.
One of the reasons is that valuation gap for PSUs—both financial and non-financial state-owned entities—are significantly up, the director at the investment firm told BloombergQuint’s Niraj Sah in an interview. “The entire PSU basket’s non-financial market cap is around Rs 8.5 lakh crore. Just Reliance is higher than that. And the entire financial PSU basket is around Rs 4.5 lakh crore and you know HDFC Bank is multiple times of that,” he said, indicating a case for value investment.
Growth investing is hunting for companies that grow over the long term, delivering multifold returns for investors, while value stocks are those below their intrinsic values.
Like all value stocks, PSUs, too, need a trigger to help them achieve their true value, Sivaram said. “We think one of those triggers could be privatisation, which the government is very keen on. If we see one of the privatisations happen, we would see the entire basket getting re-rated.”
While the ruling government tried to privatise state-owned companies such as Air India and Bharat Petroleum Corp., it has seen limited success so far. “We are close to such an event, triggering a rise in growth of public sector enterprises,” Sivaram said.
About PSU banks, he said the “NPA aggression is largely behind us and possibly overestimated by the Reserve Bank of India”.
The Commodities Supercycle
The current rally seen in global and Indian markets is led by numerous liquidity injections coordinated by central banks and government across the world. This excess liquidity has found its way into other asset classes such as bitcoin and commodities, Sivaram said.
Commodity-related companies were trading at extremely favourable valuations just six months ago and have now given substantial returns to those who invested, he said. Pandemic-induced supply disruptions have also played a part in rising commodity prices.
As these issues ebb and things go back to normal, there is some evidence that pent-up demand will sustain the increased prices, Sivaram said. “It looks like the cycle could continue for some time but have to monitor carefully.”
Watch the full conversation here: