On
Within the banking universe, SBI is something that people would definitely prefer at this stage because there is very strong revival in the operating parameters and the subsidiaries are doing pretty well and contributing to the overall valuation. Most of the stocks have run up and people may want to get into something which is within their comfort zone on the valuation parameter.
SBI is something that would definitely fit in despite the runup that we have seen in the last six months. This is one stock which has all the ingredients to make it more attractive. So, valuation- wise and on all parameters — operating environment, the provisioning and growth going forward — SBI stands out . It is one of our top picks within the banking universe.
On and other cement stocks
When we have such a ferocious move in the market and there is such a positive Budget for capex plays, it is understandable that cement companies and capex-related companies like L&T would see this kind of a bump up. If we have a big revival in the economy driven by capex and as the earnings cycle turns positive, then large cement companies would continue to do well including some of the smaller ones. I definitely think that though the stocks have run up in the past few days.
If we are going to see earnings revival, then eventually the earnings would get upgraded. We might see a little bit of volatility in the near term but from a one year-two years perspective, UltraTech along with some of the other names like ACC, Dalmia Bharat, JK Cement, Birla Corp all these stocks would continue to do well.
On sector rotation & IT and pharma
In the last eight to nine months, we have seen a very smart rotation playing out. Initially, we had IT, pharma and telecom playing out pretty well. After that we have seen a participation from the banks, autos and eventually the broader market, the midcaps and the small caps played out. So, when you are in a bull market, you know it is absolutely clear that you will see good growth across most of the sectors. But yes, some will stand out in terms of earnings performance.
Trying to play this catch up with any sort of precision is going to be very tricky. Most of the fund managers and investors will not be able to do that and it would make more sense to have a proper allocation across five, six, seven sectors which are doing well rather than trying to predict that now it is going to be IT or auto which will outperform and so on.
On engineering construction space
There are two-three names which have done well. On the one hand, companies like ABB, Siemens and Cummins have done pretty well in the last three or four months when we are seeing this economic revival taking place. Also there are companies like Voltas which is not a pure engineering play and which has consumer product components also. Somewhere it will also be a part of the capital goods engineering basket.
Though we do not have very large names except L&T, companies like Voltas, Cummins, ABB and Siemens would form part of that entire capex revival theme and within that, we like L&T. That is definitely our preferred pick but we also think that companies like Voltas, ABB will eventually perform well, given that we are going to see big capex coming through and the entire economic revival is shaping up pretty well.
On Bharti Airtel
Bharti as a stock has been a bit tricky. We had multiple moving parts, MSCI addition and then the pending price hike that the market was hoping for. Eventually the stock has ended underperforming in the last about six to seven months. But when we look at the core fundamentals, what is standing out is that despite no hike in prices, there has been a 16% EBITDA growth in the second quarter and the company has continuously been gaining the market share across these key categories in terms of subscribers. In the high ARPU 4G postpaid consumers category, the market share gain has been quite outstanding. Also we have seen better performance in the Africa business and plans to monetise some of the assets.
So despite there being not much hope of price hikes, we are seeing positive triggers come through in terms of market share gains. We will have to wait and see how the Q3 numbers are panning out, but overall we continue to be positive on Bharti. On risk to reward, Bharti is looking much better compared to most of the other names in the market today.
On HDFC Bank
There would always be that temptation to have a little lower allocation for HDFC Bank versus ICICI, Axis and SBI which are better placed in terms of valuations. More importantly, the quarterly performances of both ICICI Bank and Axis Bank have been quite remarkable and the growth trajectory is getting better.
But though we all have this perception about HDFC Bank being a retail focussed bank, in the last two quarters, a large part of the loan or the advances growth has come from the corporate sector. Though in terms of overall book size, HDFC Bank has a smaller component of the corporate exposure, the loan growth number in terms of percentage may look better. So HDFC Bank may have a couple of months of a little bit of underperformance, but as a performer, it is giving one overall comfort and people would continue to prefer that.
On
It has been a high beta stock. When we look at the numbers and the management commentary, there is a lot of comfort because on vehicle book size, they are doing pretty well. They have managed the CASA part pretty well. There are a lot of tailwinds for IndusInd Bank which has gone through much struggle in the last two quarters.
In terms of valuation, it is still at about 1.1-1.2 and so apart from a larger allocation for the top banks, if one really wants to participate through midcap or smaller banks, then IndusInd Bank will definitely fit with a better growth trajectory. It is one of our preferred picks after HDFC Bank or ICICI Bank or Axis Bank for a smaller allocation. IndusInd Bank definitely merits some kind of an investment.
