Pankaj Murarka on why he is betting on Paytm and Zomato

“On a slightly more medium to longer term horizon, we remain firm believers in India’s internet story and a lot of these internet companies. This is one sector which will deliver probably the highest growth across corporate India over the next five to seven years. We do have ownership across some of these companies including Paytm and Zomato. While we like some of the other names as well,” says Pankaj Murarka, CIO, Renaissance Investment Managers

We are at the fag end of the earnings season. Has anything really stood out for you to be a compelling buy?
I think there are a couple of trends which are very visible or discernible in this earning season. One trend which is clearly visible is that the underlying growth recovery in the economy remains pretty strong and after a very long time, we are seeing signs of recovery in industrial credit.

The industrial credit growth in India that we have seen this year over the last one year and year to date is the highest that we have seen in the last 10 years. That effectively means we are seeing some revival of investment activity on the private sector side and which bodes very well for banks overall and we have seen some strong performance from banking stocks over the last month or so.

But apart from that, across sectors, the demand trends have remained pretty strong and that effectively is a signal that the growth in India despite global headwinds and chaos remains pretty resilient and that makes me fairly optimistic about India’s growth outlook going into the second half of this year and into next year as well.

What is your take on the potential in the defence space? We have already seen quite a hefty run up in a lot of these names. Does the long-term story look intact for defence?
Yes, absolutely. The good thing about the defence business is that in defence businesses, order books are very long dated and these are very long cycle businesses where some of these leading company was sitting on order books which probably have a visibility of over the next 8 to 10 years.

Effectively, because of geopolitical issues, there is an uptick in global defence spending and on top of that, India is making its own initiatives about Make In India and reducing dependency on imports as far as defence is concerned over the last few years. More importantly, this year we have taken some initial steps toward defence exports as well to neighbouring countries.

All of that effectively means these companies have strong and healthy growth visibility not only from a medium-term perspective but from a slightly more longer-term perspective and more importantly, the starting point for all this is defence stocks in terms of the valuations is extremely cheap because some of them stocks were trading at single digit multiples or lower double digit multiples which effectively means even after such a strong rally, valuations still looks very reasonable in the sector in the context of the growth that the sector is going to deliver. I think the overall outlook for the sector remains pretty strong.

Your take on Nykaa and other platform companies. Among Policybazaar, Delhivery, Nykaa which would your top bet be?
On a slightly more medium to longer term horizon, we remain firm believers in India’s internet story and a lot of these internet companies. We do have ownership across some of these companies including Paytm and Zomato. While we like some of the other names as well, it is always a choice in terms of valuations at current point of time and could be over the next let us say four to eight quarters because these businesses are delivering very high growth and so there is a fair bit of valuation adjustment happening with time correction due to underlying strong growth in the business.

Having said that, we are also seeing sharp stock price corrections in these names over the last nine months or so. For the time being, we already have a fairly healthy exposure to some of the names but from a medium to longer term perspective, we remain fairly bullish and constructive on the overall sector.

My belief is that internet sector will lead India’s growth over the next five to seven years, this is one sector which will deliver probably the highest growth across corporate India over the next five to seven years and lot of these companies are now getting to a stage where they are getting to cash breakeven and probably they will start churning out cash or throwing cash from their business. Some of these companies can generate substantial cash flows out of their business for shareholders over the next three to five years.

On record, did you say Zomato and Paytm were your top picks here?
Yes, that is right these are the names that we already own in our portfolios.

Where do you stand when it comes to Piramal Enterprises on the back of the kind of numbers that they have delivered? The stock is taking quite a walloping. Is there any silver lining?
I am not an expert on the name and I do not have a proper understanding of the business. I understand broadly that from a NBFC which was largely into wholesale linked real estate lending, they will transition their business or a meaningful part of the business to retain mortgages after acquisition of Dewan Housing; but we still have legacy provisions on their real estate lending which continue. I am not sure whether they have reached the peak of that provisioning but I will probably skip that part in terms of expressing my view on that name.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)