Category: Banking & Finance

What is your take on financials? Do you think that asset quality fears may come to haunt them a little later?
This space has gone through a lot of pain in the last one year. Initially, when we had the lockdown fears, the entire sector went down and within that sector, the smaller banks and NBFCs went through the maximum pain and after that we have seen a good amount of revival and by and large things are looking much better. What is important to note is that within the universe, there are a few pockets where the outperformance has been huge. Typically, HDFC, Kotak have underperformed and ICICI, Axis and SBI have done better.

My view is that some of the smaller banks like AU and a few other NBFCs seem to be doing well even in the most challenging environment where top notch banks are struggling to grow in terms of the NII and the overall franchise part. In a bull market, one typically tends to look out for some of the more exciting opportunities and within that, AU Bank or Federal Bank would definitely fit in. But a larger allocation of stocks should be in the likes of ICICI Bank, Axis Bank and State Bank of India.

Have you looked at Zomato’s numbers? There’s strong growth, strong revenue momentum and stronger contribution margins and all of this at the peak of the second Covid wave. Is that reason enough for the stock to push up even further?
The reason the Zomato IPO met with so much of success and excitement is definitely because there is a belief in the fact that there is a long runway of growth. The kind of app that they have created and the kind of business model that they are following would really deliver good performance over a period of time. When we look at the numbers, the fact remains that on the topline front, the average order value or the number of orders definitely has an element of momentum and traction and which also indicates that there is a good demand revival.

On the other hand, what really came as a big surprise was that the contribution margin has dropped by 170 bps and that is something that needs to be really checked as to what really is leading to this kind of a compression when there is a very strong growth on orders etc. What remains to be seen is that once offices open up and people go out more, are we going to see this momentum continuing or there is some sort of a cool off? That is something that we will have to watch. I do not think that we should form a view on Zomato by looking at the operating loss or the net loss. As long as the company is delivering on their top revenue and delivery transactions parameters with an eye on margin, the market may find this pretty exciting to get into it.

Give me the name of a small cap or two where you think a 10% downside for technical factors is possible but a 50% upside is also possible in the next two years?
I would be happy to share the midcap names or some of the smallcap names, but we have to be mindful of the fact that given the kind of runup that we have seen and the kind of valuation at which the broader market or midcap stocks are trading, they are almost at par with large caps. With this kind of runup, the volatility or the correction sometimes can surprise us. It may be 10%, it could be little more also and that is something that we will have to bear in mind when we are trying to dabble into the midcap and the small cap names.

So within the broader universe, we are comfortable in the cement sector. Given the kind of visibility that we have on the volume front, the companies on the north and east side of India are extremely well placed. One can look at names like JK Cement and to some extent Dalmia. Somewhere there is going to be a listing of Nuvoco Vistas and we will find that these existing companies are far better placed compared to the newly listed ones and that may create some sort of excitement.

Apart from that there are some of the smaller banks. Banks as a sector remained a bit muted for a long time and we are seeing an uptick and so AU Bank and Federal Bank are the two names within the financial vertical that we would be going with.

What about sugar stocks? After the runup in stock prices, do you believe they can be added afresh or added to the already existing holdings?
We have seen a very strong momentum in the global sugar prices maybe because of some crop failures in major continents like Brazil and some of the south-eastern regions. What remains to be seen when it comes to India is what are the inventory levels and the pricing that one can really expect from where we are right now.

Also we have to bear in mind that an important state like Uttar Pradesh is heading towards elections and the sugar policy and the stance that the government takes also plays an important role from election campaign perspective. It remains to be seen what happens in terms of fresh developments. Some of these commodities are in a strong up move and people may have some allocation for names like Balrampur Chini and some of the major north-based sugar companies. From a tactical point of view, it may make sense to participate in those names.