Dalal Street Voice: Big Shift! Indian manufacturers are pivoting businesses to clean energy and EV, says Akshaya Bhargava of Bridgeweave
In an interview with Zeebiz's Kshitij Anand, Bhargava said that clean energy companies like Adani Green, Inox Wind, and Orient Green power are trading at steep valuations and will be susceptible to steep corrections.
Akshaya Bhargava, Founder & Executive Chairman, Bridgeweave said that increase in climate change has caused an increase in capital allocation towards clean energy. Indian companies have been increasing capital allocation to Electric Vehicles (EV) R&D.
In an interview with Zeebiz's Kshitij Anand, Bhargava said that clean energy companies like Adani Green, Inox Wind, and Orient Green power are trading at steep valuations and will be susceptible to steep corrections. Edited excerpts:
Q) The big theme, which has started to play out, is the revival of the Capex cycle. From a portfolio standpoint – how should one play this theme across sectors?
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A) It is essential to never over-index (increase allocation more than the index) in this theme as interest rates are low and inflation has started picking up.
However, from a US standpoint, interest rate hikes are expected 4 times this year. This will lead to the liquidity situation to tighten in the short to medium term.
This in turn will resist companies from spending on the Capex front. Sectors in this area consist of broad macro themes such as Electric cars, Airfreight, and Courier companies, which are essentially new economy bets.
Q) Value or growth – which theme will pick momentum in 2022?
A) Value companies and growth companies differ greatly. Growth companies leverage on big loans and venture capital, and value companies have been underperforming, globally and locally in the past 2 years.
Essentially, as the money dries up in the system, it will get difficult for growth companies to find further sources of capital, resulting in expectations getting further away from reality.
Value companies, especially the ones that pay out the dividends will have an active switch in allocation, hence, more priority is given to them.
Sectors like energy, including old school energy, should come back in focus and should have relatively lower drawdowns.
In terms of picking up momentum, the free cash flow generation will pick up most of the momentum, in contrast to companies that focus solely on top-line growth.
Q) We saw plenty of stocks creating wealth in 2021 – but many failed to impress. Should one look at stocks coming out of quarantine because of lockdowns/curfew?
A) Yes, most definitely. For example, the auto sector faced a decrease in demand during the lockdowns. Even if it was for a short period of time, during the months of August to December, it was evident that early signs of buying within this sector were stimulated.
Companies such as Maruti, Tata Motors, and Mahindra have already observed huge waiting periods. This can be attributed to silicon shortage; however, we have also seen an increase in demand, essentially people that deferred their buying decision due to uncertainty.
Once the semiconductor shortage is addressed, the companies can increase production to meet the demand. Moreover, the residential real estate sector proved to do exceedingly well late last year and continues to do so.
The upper-middle-class category did in fact benefit from the lockdowns, as it decreased discretionary spending and hence, increased savings to be invested.
The recent deep correction in Tech stocks is being fuelled by an uncertain geopolitical issue. The growth companies of last year, such as Netflix, Paytm, and Zomato in India have seen a deep correction.
Companies that have reported strong cashflows have seen renewed investor interest. Therefore, investors are looking at a style shift from growth to value.
Q) What are your views on clean energy space which as a theme has picked up traction? Stocks and sectors to play in this theme.
A) Due to the increase in climate change, it has caused an increase in capital allocation towards clean energy. Indian companies have been increasing capital allocation to Electric Vehicles (EV) R&D.
After thorough research and application of appropriate technology, EV two-wheelers are similar to the cost as their traditional counterparts, hence, the adoption should be exponential.
However, in terms of four-wheelers, major producers such as Tata Motors view their EV proportion to double by next year.
Indian manufacturers are pivoting their businesses to clean energy and electric cars. Auto “enablers”, such as “Hindalco, Sona Comstar, Exide & Amara Raja, will play a pivotal role in their journey.
Further, it would be interesting to see the implications on Sugar companies, given that government has made it mandatory to blend 20% of ethanol into petrol by 2025 since sugarcane is widely used in biofuels.
Clean energy companies like Adani Green, Inox Wind, and Orient Green power are trading at steep valuations and will be susceptible to steep corrections.
(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)