People say that fmcg it will be a great lever for TIC going forward. What is your point of view?
I agree with that view because also in recent years, whether there has been a slowdown or not, ITC's consumer goods business has been growing in double digits. Since some of the companies have scaled and TIC has been constantly entering new lines of business. I think ITC's consumer goods business has a long way to go to grow.
What is your opinion about Natco Pharma And the other underdogs of the pharmaceutical space?
We do not have coverage at Natco Pharma. We are cautious in the pharmaceutical space at present because the sector has not delivered consistent returns in the past. Within the sector, we like Sun Pharma among large caps and Torrent Pharma and JV Chemicals among mid caps.
What are the main bets as it relates to the entire insurance space?
Insurance is one of the most interesting segments in the long term. In the last two or three years, insurance stocks have underperformed, whether they are life insurance companies or P&C. Over the long term, both life and P&C insurers have plenty of scope to earn constant and stable returns.
In the listed life insurance space, HDFC Life continues to look good. Today there are some news, so it can be corrected a bit. It is followed by SBI Life.
With regard to non-life insurance, we have two outstanding actions. One is ICICI Lombard and the other is Star Health. Given the incidence of medical claims, which is lower in India, the entire segment is catching up. In the long term, investors have plenty of room to earn high returns in both segments: life and non-life insurance. However, you will have to take a long-term view because insurance companies are not very cheap in India.
What is your view on defense space, specifically, BEL and hal. Are these companies that, in a sense, are going to be the biggest beneficiaries of what's happening in the defense/aviation space?
We like the defense space because India has invested little in defense, maybe not for the last five, seven years and maybe for at least the last two decades. So the defense offers a very good opportunity given the long borders we have.
Some of our neighbors are large countries with very strong defense teams on their hands. So both stocks, particularly Bharat Electronics, offer the opportunity to play broad-based growth because it caters to the Air Force, Army and Navy.
The type of electronic warfare equipment that Bharat Electronics manufactures are futuristic products and as we move forward, the demand for these products will only increase from here. In the entire defense package, Bharat Electronics' PE multiples are perhaps the highest because the shares were listed 25-30 years ago. It is a seasoned stock and has delivered returns for investors in the past.
So now it's pretty mature and there's not a huge element of surprise that's going to come in terms of PE re-rating. Hindustan Aeronautics It is another very good company. However, in the last five to seven years, the growth has not been much because in some of these companies that are dedicated to airplanes, submarines or frigates, the business tends to be irregular.
Second, capacity constraints play an important role. What's happened with HAL, particularly in the last couple of years in particular, is the stock that was trading at 9-10 multiples of PE, has gone down massively and the stock is maybe 4-5x from the bottom.
From here on out, multiple expansion of PE will come at a slower pace. Having said that, after the recent visit of the Indian Prime Minister to the US and the fact that the air force will now get GE engines for the new Tejas aircraft, it is definitely positive for this company. However, it is one thing to re-qualify and another is its secular growth. Since defense company business is often spotty, multiple PE reratings might stop after a while and post that, we'll have very secular returns. But in the medium to long term, stocks look good and the government's push to upgrade defense forces equipment and other things remains at the center of activity.
