What are your long term preferences in banks? Can one add some of PSU banks in the list?
It probably needs to be a mix of everything considering that the economy is coming through a bad phase and we are seeing a rebound happening. For people with a higher risk profile, RBL could be a very interesting buy with a target price of close to Rs 300. The risk rewards are quite favourable considering how the bank over a period of time has been able to take care of its NPA. They have a leadership position among one of the leaders on the credit card side and that part of this business is not as bad as what people were thinking six months back because of Covid.
In addition to that, ICICI Bank also looks quite good to us considering their weightage in terms of valuation and how the subsidiaries are doing in terms of profit growth. Close to Rs 580 could be a good one year target for ICICI Bank.
These are the kind of stocks we would be comfortable with for the next 12 months. HDFC Bank should always be part of your core portfolio considering it would enjoy similar kinds of benefits like others despite the high multiples.
What should investors of Vedanta brace themselves for?
Promoters have increased the pledging and probably they want to get more money to buy more stake in the company. The best thing to do for the investors would be to hold on as the commodity cycle is going up and for companies like Vedanta which are very huge in the commodity space, it is a very good company. When the delisting was happening, everyone was saying that the valuation of the company should have been more than Rs 250 to 300 per share. So, it is a very good stock to own. I would ask investors to stay put and over the next three to six months, ride out the cycle. If the stock goes above Rs 200 level, then you can start looking at partially booking your profit in this particular stock.
Where do you stand on the metals theme? How sustainable is this?
We are probably at the starting of the cycle on global commodities. Most of the international indices are reflecting the same and I tend to agree that after this strong up move that we have suddenly seen, probably there will be a similar kind of consolidation happening on the IT side. After that, we saw stocks moving up again.
With regards to specific stocks, Tata Steel looks very interesting and even SAIL. Considering that some amount of raw material infusion is coming up, SAIL could be a big beneficiary going forward. These stocks would be interesting to look at from the next six to seven months’ perspective because valuations are dirt cheap as in the case of SAIL. It is right now available at around two-third of the book value which reflects that a lot of steam is left in terms of these stocks going up from current levels.
Anything that can be picked up in the midcap and PSU bracket in financials?
One stock that can be looked at is called Spandana Sphoorty. It got listed recently. The interesting point about this company is that their tier-1 capital adequacy is close to 45% which is the highest among the MFIs. We expect their AUM to grow at around 28% CAGR over the next two years. The price to book at around 1.3 times FY22 is quite lucrative considering that 50% could be the earnings growth in FY22.
For that particular reason, despite the problems in the MFI sector, the risk reward in this particular stock is pretty good. The stock can easily reach a target of Rs 875 over the next 10-12 months.
Anything that you like in the housing finance space?
In the housing finance space, most of the players who are left now are the PSU oriented kind of guys or the bigger ones like HDFC. Right now, I would go more with HDFC because there is still a lot of value in the company considering the stake that they hold. As traction improves on the overall sector, liquidity is going to be a very important criteria.
The ability to lend is also important and from that perspective, I would rather go for an HDFC Ltd than look at maller housing finance companies at this particular point of time.
Hospitality, catering, F&B industry are indicating that despite the curfew, the Christmas New Year’s cheer has been absolutely phenomenal. Do you believe that as we move into 2021, the prospects look strong or is it just too far ahead to hazard a guess?
One needs to look at the kind of business these companies are in. If it is more on the business travel side, there is still more pain left but on the luxury travel side, we are seeing green shoots in terms of demand and the hotels’ ability to charge higher relative to what they were charging a couple of months back.
So from that perspective, one has to be quite specific in terms of which kind of companies to look at. One winner could be Mahindra Holidays because that is not too much on the business side but more on the luxury side. Those kinds of companies probably should do well going forward. With regard to some other companies, since they also have a business side of the basket, we would like to wait and watch considering that stocks have already moved up a lot over the last two, three months.
