Should energy, power stocks have more weight?

We are never going to be able to take huge market share because while manufacturing has been a focus in the last few years, we are a long distance away from being a replacement for China. Hopefully, if we play our cards right, manufacturing should become a potent growth driver of employment going ahead, says Nitin Raheja, Co-founder, AQF Advisors. With crude at $80 a barrel and gas price hikes effective October 1, that should augur well for both ONGC and Oil India?Oil companies which are in the upstream segment should benefit from the rise as far as crude prices are concerned. The October gas price is something which is not linked to it but it has been in the works and we will probably see two of those happening over the next six months. It should help these companies in the short duration. Will we see more weightage now being given to energy, power and coal stocks from a long-term perspective? What we are seeing now could just be a knee jerk reaction?Right now, it is more of a knee jerk reaction to the various disruptions that we are seeing in the power and other sectors. The whole concept of lockdown, shutting down the economies and then starting up -- I did not think that anybody thought through the second and third order effects which is what we are seeing on a daily basis now in different countries all over the world. But going ahead also we will probably see a lot of disruption in the whole power sector with the renewable power companies getting bigger in size and slowly some of them planning IPOs in the future. There will be some element of churning and some newer models and types of companies entering the indices. But in the short term, it’d be too early to comment that I see that the whole power sector is going to be a larger component of the index. What do you feel about IT as a pack right now? Do you sense that while we are going to see shallow dips in IT, they too will very swiftly bought into?It seems the entire IT pack is a buy on dips story. However, IT also has this phenomenon. One sees a runup in the stocks prior to the results, every quarter. Then, they start tapering off a little bit and settling down before making the next move. In that sense, this time we are seeing a correction just before the result season starts from next month onwards. It is pretty unique but it is a buy on dips sort of sector. It is hard to imagine what is happening in China. For a country which was stimulating its economy to get growth, is now trying to go the other way. China is the factory of the world. What would be the implications for Indian companies given what China is trying to do on the power side, on the tech side, on the production side and on the environment side?From an India perspective, there are two elements to it. Let us look at the negative element first. A lot of companies are dependent on China for some of their imports. China was the API factory of the world. Some of the pharmaceutical companies which are dependent on China clearly will face some disruptions that are happening out there. Now the prices of those commodities will move up. On the other hand, China is no longer in that build, build, build mode which they were in for almost nine or ten years. A lot of that was financed through government debt, local municipal debt. The whole financial system has cleaned up considerably when there is yet enough and more leverage which lies in the system. So if they are moving in that direction, the whole infrastructure led growth is going to slow down and that can have an impact in terms of the demand for steel and ferrous and non-ferrous products as such. That will also have an impact as far as commodity prices are concerned. So, if one looks at some of the base commodities where China is a large exporter, there will be some supply disruptions. China has been a consumer as far as infrastructure is concerned. We would see some softening there. Also, China has contributed 25% of global GDP growth. Now as China’s growth is expected to slow down over the next few years led by unfavourable demographics and the real estate boom unravelling, there will be an impact on global growth as such. From an India perspective there will be some benefits. Some industries where China was a big importer like tyres should benefit from the fact that China will be less of a disruption as far as that business is concerned. All peripheral businesses around that should benefit as such. India will also be a beneficiary as people would want to diversify away from China. We are never going to be able to take huge market share because while manufacturing has been a focus in the last few years, we are a long distance away from being a replacement for China. We will start presenting an alternative. Hopefully, if we play our cards right, manufacturing should be a potent growth driver of employment going ahead.

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