Are you disappointed by Kotak Mahindra Bank’s quarterly numbers? Do ICICI Bank and Axis Bank provide a better risk-reward opportunity?
All the four leading banks are priced to perfection and so there is no room to stumble. Anything which is even a little disappointing makes the brokerages go for a rerating, like what happened with Kotak. It is a fabulous brand, very well capitalised and run by probably the best financial mind in the country, but it is priced to perfection.
Mr Kotak gets the credit cycle right and that is what the market is missing this time around. NPAs are not coming in from the corporate sector because that deleveraging happened for 5-6 years. NPAs will come in the retail sector and most of the public sector banks and quite a few of the private sector banks have been overloading on the retail side. You can see some ugly surprises on that front if this lockdown gets extended. A like Kotak would stand out in this situation. So I would give them their higher valuations, based on their much finer credit and their ability to pivot for opportunities. Right now the numbers have been disappointing for the market, so you are seeing a bit of froth going out. But all four of these top banks are a buy and have to be a part of the portfolio. If you are looking at a very strong growth returning to India sometime in 2023, you have to position into banks, and the top four banks are the highest quality that you can get.
What is your long-term view on RIL stock?
Jio’s ARPUs have been falling and are at multi-quarter lows. The Reliance Retail story remains quite strong. The issue is with their traditional businesses and deal with Saudi Aramco. On Jio, the market is now looking at the traction from e-commerce and digital. They have acquired a few small companies but nothing of scale. The next move of Jio Platforms will be very critical.
Hiving off Reliance Retail will be another driver. The stock has not moved in the last 4-5 months. Reliance Retail and Jio are going to be driver. Some amount of traction will come back in the traditional businesses as global economies recover. If you have to look at an Alibaba or a Tencent versus Jio, then you are on the ground floor. So if you trust Reliance’s execution skills, want to get into a company which has a finger in every pie in the digital space and can deliver substantial numbers then you can look at it. Otherwise, wait for a few quarters for more clarity. Most of the value from stake sales of last year is already reflected in the stock. The next leg of rally will now depend on how tie-ups with Google, Facebook shape up and how does the entire Jio Platforms deliver on the revenue front.
How are you approaching the entire media sector? While it is a complete no-show for multiplexes, how are you looking at print and broadcast stocks?
I would play the reopening trade with cinema stocks. Reopening will happen after 3-4 months and you are getting these cinema stocks at very low levels. In print media, a few companies are listed and they have all gone digital. But their ad revenue is being taken away by Google, Facebook and others. Media has the ad constraint and unless the model evolves and we get some solution, the big guys will keep on eating up the ad money.
Do you sense that metals could see a serious bout of profit taking or do you think this trend is going to continue to be strong for many more quarters?
It is a super cycle, the seventh in 200 years. It is probably less than a year old and so we are in the midst of it. Valuations are getting worrisome now. The price-to-book ratios are also high, so most of the growth has got baked in. But people will get attracted even at these levels. Export prices are still about 16% higher. You are getting good realisation from those markets. Secondly, because of China shutting down plants on concerns of pollution, the demand-supply gap is still quite big. It will take some time, it is not easy to restart or rejig even to increase production in a rush; so whoever has the capacity in hand will benefit. You might have a mild correction after the results because the market has factored in blockbuster results. So there will be some selling but that will be a good time to pick up. This is a multi-year story and is not over.
The super cycle, demand-supply (gap), pricing power and the future growth in the global economy are the four drivers which makes these stocks worth buying. There will be a correction in the immediate future as the results come out, there will be some profit booking but that will be a time to buy again.
