Would you want to go down the rung when it comes to any of the smaller banks and look beyond the top five including SBI?
Now that the Supreme Court verdict is out of the way, we can crystallise the losses, the NPAs and provisions that each one of the banks will have to do. It is an additional hit of about Rs 10,000 crore odd to the system. So whether the government funds it or whether the banks bear it net-net, we know the way and adjust for that.
Many of the second-tier banks– be it
trading at 0.8 times book or NBFCs like L&T Financials — are trading under book. For both NBFCs and mid-tier, financials, there is sufficient room for rerating. The only question is every now and then, we get a Covid spike and that slows down the recovery rate. But I think they are positioned well.
Have you had a look at the entire pharma basket? What would be cherry picking within the space?
Dr Reddy’s and some of the other pharmaceutical companies have underperformed the market this year and in the last few months. In case of Dr Reddy’s, it is probably because of uncertainty over when Sputnik will be launched, even though it still contributes a small number to the overall sales. Now that the government has opened up the 45 years and above category for vaccination, the volumes required will be high and therefore Sputnik hopefully will be approved at some point in the near future and that will bring back momentum.
Second is Glenmark, the stock probably trades at 12-13 times. We are expecting a couple of product approvals, extensions in the very near future. If that happens, there is sufficient room for the stock to rerate because the valuations are on its side.
Where is the good old speciality chemicals trade headed? Is this still a good investment bet?
Speciality chemicals as a sector will continue to do well. Large companies like SRF are expensive but growth is very visible and therefore these companies will grow very fast. Smaller companies like
Fertilisers makes both fertiliser as well as speciality chemicals. These companies are trading at about six times and for very visible growth over the next two or three years as they have a huge runway for growth. Also the rejig of the portfolio away from China towards India will benefit them.
Plus we see a recovery in regular trade. There is more than sufficient upside in a number of names, at least 20% upside CAGR for the next two or three years in many of the names. Gujarat Narmada Fertilisers is a good example.
How are you assessing the overall environment when it comes to real estate in terms of the pricing and the surge in demand that we are likely to see for the housing segment? How do you see it impacting listed real estate plays?
For real estate companies, labour is still an issue. People are still coming back after the lockdown and they are still not at their pre Covid levels. Second, at least they are not loosening up on their inventory. They are coming off on the price and that will help leverage their balance sheets. None of their balance sheets except for a couple of them are pristine. They are all fairly levered companies.
But with the affordable housing bracket doing well and with very low interest rates, it has been a very good catalyst and the well run companies like Sobha, Prestige are seeing significant traction and a couple of REIT listings have also done well.
Against this backdrop, the affordable housing segment will do well and also the ones which have a fairly decent commercial mix like Prestige will also do well. The higher levered companies still remain a concern. But this is a sector which is in the early stages of recovery and some more quarters of good news is still ahead of us.
With crude oil prices seeing a bit of a cool off, how are you looking at the entire OMC energy space?
An oil price band between $60 and $70 is something which the Indian economy can live with. As far as the OMCs are concerned, the volatility in prices will leave them depending on their hedges. I am fairly uncertain about what will be the impact on earnings.
would be probably one preferred way to play this rather than the and and even Reliance Industries has not performed– it has kind of underperformed the market in the recent past. So from that perspective I would look at an improving outlook for oil prices through Reliance Industries.
