Agriculture | Infra | Manufacturing: Budget Focus? AIM for 3 Sectors; Adani Enterprises a Good Proxy for Airport, Data Center Plays: Deven Choksey

The defence space is very much in demand for various reasons. ET reported this morning that Adanis may enter shipbuilding. There is a huge demand-supply gap and major shipyards across Asia, all the way to Japan, are overbooked for the next five years. A lot of shipbuilding in India has already been reassessed. PM Modi is visiting Russia right now, so defence is in the spotlight. What do you think about that?
Deven Choksey: In the budget, we expect a higher allocation for defence. The requirement for building and maintaining ships is significantly high. On one hand, we have the defence sector which needs to be serviced but on the other hand, because of the inland transport requirements which the government has highlighted significantly with its Sagarmala project, a significant part of the requirement would be cargo in the future as far as inland transport is concerned.

At the same time, there is also a commercial requirement for passenger ships, with the growth in leisure tourism, including in enclaves like Lakshadweep. So, overall, in the next five years, we will see a significant amount of entry into this particular area of ​​activity. There will be a clear demand for shipbuilding here. India has historically held this particular position largely in the portfolio of government companies and they are not suitable at this juncture. Some of these companies operate ship services, which are being done by some private sector players.

But larger players like Adanis could be the right choice for shipbuilding. It is not a short-term advantage for either company, but in the long term as a directional call, it will be significant, as I understand.

If we talk a little more about defence, we are talking about mega plans that could potentially be pushed forward in the budget this time. The government has talked about a 100-day plan. There is a lot of focus on Make in India. How do you see this sector shaping up in the rest of the year? Is the long-term outlook still very promising?
Deven Choksey: Yes, the directional signal certainly remains positive.

Do you have any direct or indirect contact with the airport since it is owned by Adani Enterprises?
Deven Choksey: Yes, within Adani Enterprises, that particular business was visible and we still have some positions in that particular stock. So from that perspective, the proxy understanding of the subject exists. What we understand in that particular game plan is that on one hand, it is an infrastructure play to build airports and on the other hand, there is a revenue stream, whether it is in the area of ​​passenger tax that they collect or passenger fee that they collect or in the area of ​​landing and take-off of those aircraft.Have you looked at this data center opportunity? Do you have it in your portfolio or are you investigating it?
Deven Choksey: We looked at that. Again, Adani Enterprise is the proxy through which we tried to understand this particular business. The business looks pretty good. Of course, the business model is not easy to figure out because you have to look at some financial numbers. But the most important part is that larger corporations are making a systematic shift to both cloud and compute services, which is probably where there will be more of an emphasis. Thirty percent of the Fortune 500 companies are still operating in cloud and data centers. The rest of the companies are still operating in the infrastructure that they operate with. Many companies are still operating in hybrid infrastructure. As 5G rolls out, that will increase significantly, we understand that. So that is our broader understanding of the subject that we are doing. The financial numbers will be more meaningful at some point when we start looking at the balance sheets of these companies.

Q1 updates are gradually trickling in to some of these FMCG counters. What are the budget expectations for FMCG boosters?
Deven Choksey: This budget will focus on three areas. One area is called A for agriculture, I for infrastructure and M for manufacturing. We should look at each of these three areas. The basic idea is to push the employment agenda in the country, in rural areas and probably there we see some FMCG companies as beneficiaries.

There is more activity in rural areas – be it agriculture, infrastructure or manufacturing. We are expected to see more distribution of income in the hands of the poor masses and they are likely to consume significantly large amounts of basic goods. So from that perspective I think FMCG companies are in a good position.

In some cases, they have significantly established their presence in rural areas. Their supply chain network and distribution network have been strengthened and companies like HUL have also demonstrated AI formation in their business where we will look at demand generation through AI applications. All put together, there is no denying the rural focus. We believe that if the economy grows at a nominal rate of 11.5-12%, then in such a situation, the FMCG space could grow at the same rate as the economy and even slightly more in some cases.

So in select companies, we are now in a relatively better position compared to previous years where we probably had muted growth. Now, the amount of growth that we expect in some of the FMCG companies will be much larger and sharper going forward.