Month: August 2021

What will be the impact on Vodafone after Mr Birla’s resignation? Also, how exactly would Bharti and Reliance Jio gain and how should one approach the telecom sector now?
I continue to maintain my view that there is trouble for this sector. Even after the number of players came down from 7-8 to 3, we were still not able to increase ARPU. Now, one of the companies is just throwing up its hands saying that they are not able to manage. In the short term, there is more pain. Maybe the government will come out with a package or something delaying the payments. But long term, it could be good. But in the short term, it would be pain.

Why would you say that? As Vodafone is losing market share, the subscribers are not going to stop using mobile phones. They will switch to Bharti or Jio and both will gain market share as a three-player market becomes a two-player market.
That was true earlier also. Vodafone has been hanging by a thread. In the last 12 months, every month Vodafone has lost customers. There has been a question of its survival. But still ARPUs have not increased. Both the top players continue to come with very aggressive numbers though their bottom packs have been raised from Rs 49 to Rs 79. But there are enough discounts out there. At the end of the day, I would look only at the ARPUs and ARPUs do not seem to be increasing and none of the two players are actually going out and saying that they are going to be giving away or taking a backseat as far as competition is concerned.

The world over, it has been a two- three player market. There has never been seven or eight players anywhere else. In India, they were surviving. Now, they have been cut down too and the existing players will continue to compete with each other.

SBI seems to be recovering faster than anticipated and the hit on account of Covid second wave is not as much as the Street was pencilling in or even the industry average. What’s next for SBI?
The results have been good but I would be a little bit worried given that most of the other banks have shown higher slippages as far as the second wave is concerned, especially, on the retail side. I would wait for another quarter because my issue remains that the coverage ratio is very low for SBI. It is only 40 bps which they have provided for unlike most other banks especially on the private side, who have provided for anything between 1% and 1.5%. Otherwise, the bank is doing pretty well. The recoveries have been good and it seems to be on a very solid wicket. So wait for another quarter but definitely it is a buy on dips.

Everyone is bullish on real estate and housing demand but somehow the HFC stocks have done nothing. Why is that?
After the first wave, most of the HFC stocks doubled from the bottom like Can Fin, LIC. HDFC has been a bit of an underperformer but that has also done well. During the second wave, basically everybody seems to have suffered — and the slippages are much higher in companies like LIC Housing Finance. HDFC Limited came up with very good numbers, Can Fin also faced some amount of pressure. So during the second wave, market was worried as far as retail is concerned/

The market is worried what is really going to happen if another wave comes in because the retail seems to be getting much more hit than the corporate book in the banks because the corporates are able to get their people vaccinated and and it so they continue to work but the collections suffer as far as the retail is concerned. That is why the market is a bit worried and wants to wait out for another quarter to see what really happens on the health side.

If everything goes fine, then we will start seeing some action in housing finance companies. But having said that, I believe it is a good time because these stocks have not performed and if real estate rightly is doing well, it is only a matter of time that the housing finance stocks will also start doing well. So we have a buy across the whole sector.

Where within banks are you finding comfort to buy afresh?
The top two banks SBI and ICICI are the ones I would put my money on. As the recovery in the economy happens, most of these banks are showing stronger recovery in their old NPAs. ICICI, Axis and SBI historically have had much higher NPAs in their portfolio. So when the recovery happens, they would be the beneficiaries and that is why one is seeing a strong recovery there. HDFC and Kotak are the better ones of the lot. They never had much problem and that is why they have quoting at 3.5-4 times. During this phase, they may underperform the market.

The Covid bump off for pharma companies is over. Today Cipla will come out with numbers for the quarter gone by. Is market pricing in the normalisation of pharma earnings?
I think so. Last year when Covid hit, the pharma sector came out of five years of underperformance with most of the stocks doubling in a very short period of time. But if you look at a longer time horizon, I think they would have just returned whatever 30-40% kind of a return on a five year time basis. So yes, for a short term, outperformance happened. The API companies started showing 20% plus kind of margins and as the Covid receded or things became normal, most of them have hit below 20% margin and are not even able to hold 17-18% margin.

So as we are going back to normalcy, the easy money has already been made in pharma and it is going to be very stock specific. We may see something like Divi’s outperforming. A new stock which got listed, Gland Pharma, is outperforming. Now it is going to depend on earnings growth and valuations.

Sun has been an underperformer for a long period of time and for two quarters, they have started showing good performance on the specialty portfolio which the market was waiting for. The stock is outperforming now. It is very, very stock specific now. The big move is over in pharma