Competition Key Factor In Picking Bets, Says Ajay Srivastava
Srivastava is most optimistic about commodities, industrials with core infrastructure, telecom, and online travel companies.
Competition in an economy growing around 6% does not assure high returns, according to Dimensions Consulting's Ajay Srivastava.
"If there is competition, we don't like your sector," Managing Director Srivastava, told BQ Prime. "In a shrinking GDP or a 6% GDP, more competition doesn't give you higher returns."
Citing the example of the two-wheeler industry, Srivastava said new players after entering the industry have taken over the electric vehicle market. The old players are going to compete very hard, and as such the returns would be mediocre, he said.
Keeping this in mind, Srivastava is most optimistic about commodities, industrials with core infrastructure, telecom, and online travel companies.
"So I think commodities and industrial infrastructure would perhaps account for almost 60% of our portfolio choices at this point in time," Srivastava said.
Commodities, Industrials, Telecoms, QSRs
Commodities remain the top pick for Srivastava, both locally and globally.
Dimensions Consulting has not reduced commodity exposure in the last two years and continues to build on that as time goes by, he said.
Industrials with a core infrastructure segment are also among Srivastava's top picks. Meanwhile, the two- to three-player telecom sector also seems non-competitive with the potential to churn out higher returns, he said.
Srivastava also prefers companies operating in quick service restaurants and those undergoing restructuring process.
View On Cement Industry
While Srivastava pegged the cement sector as good with stronger players entering the fray, he raised concerns about the market's ability to absorb the "humongous" capacity expansion that is happening in the sector.
The capital spending, the said, is also huge at this point in time because the companies are setting up greenfield and brownfield establishments, anti-pollution equipment, etc., leading to a poor asset turnover ratio.
"When you have a poor asset turnover ratio and a poor margin, your return on equity cannot be anything great," he said.
Tea And Real Estate A Great Play
The consulting company has increased its exposure in the tea industry as it offers very great long-term value, Srivastava said.
Elaborating on the tea industry and real estate, Srivastava said government allocations would go to India's northeastern regions as it is a political priority. This, he believes, could lead to a big migration to the tea plantations with lower air quality index levels.
In addition, recent disasters in hill and mountain regions have rendered them unsafe for human habitation, making the north-eastern regions appealing.