Don’t you think that stocks like ABB, Siemens have run up quite a bit? They are not trading at cheap valuations, they never have and this false start to the capex cycle is something that a lot of us have already burnt hands with. What makes you this time around that this cycle is going to be different?
There are three legs of a capex cycle; one leg is the personal capex which is reflected in real estate that we all know is already playing where these companies do not have too much of a play but a small portion of that.
The second leg is the industrials part where the private capex comes into play. Now we have seen private capex is selectively coming back in steel, power and solar.
Our basic premise is that the next leg of industrial capex will be not just capacity expansion but improvement in efficiency. Because of a lot of competition, all these companies are looking for automation and looking for ways of bringing more productivity.
For that, all these companies like Honeywell, ABB and Siemens will play a very major role in Industry 4.0 and all those efficiency related investments will come. That is a big play which is what we are banking on.
The third leg is government capex. Despite the fact that the government has had some challenges on tax collections, fiscal deficit etc, capital expenditure has been maintained and revenue expenditure has been cut and there has been some sluggishness there but capital expenditure has been maintained.
So out of three legs, two legs are already working; industrial capex and private capex. That is what the premise is and we are therefore looking at these companies.
You are saying how the government capex will increase. Does that mean you are bullish on metal names as well or is the best in terms of metals behind us?
I think the best in terms of metals is already behind us. We have moved out of metals almost six, seven months back. As of now, we are not holding any metal stocks. There might be some intermittent trading bumps which will come in this sector depending upon what kind of news flow we will have.
One more leg is due when the government will reassess the export duty on steel etc and we might see some jump in these stocks but I think the major rally is over. It is a very common misnomer that capex is related to metals. Normally it is not that way because the metal part or the contribution of metals is very small.
Secondly, this time we are not talking of a large number of factories which are going to be built up. What we are talking about is more efficiency and more automation which will come up and the roads and ports and infrastructure projects will be built.
So whatever demand comes for metals, that would be there and stock prices have already moved to the all-time highs. I do not think it is giving a very good earnings scope for further appreciation.