Do you agree with Credit Suisse’s view that it is time to sell steel and go away?
We have seen massive upgrades across steel stocks in the last 2 quarters. The major hypothesis has been that prices are firming up internationally. India is still at a discount and things are looking good. So there are two aspects here. One is that in metals or any other commodity play, the call is on the basis where the prices of those commodities are moving. The second part, which is far more critical, is that in the last 2-3 quarters the improvement in balance sheets of steel companies has been mind blowing. Their enterprise value has not changed in the last six months, which means that the entire growth in market cap is only to the extent of the debt that has been repaid. So there is still some re-rating that one can expect on the basis of stronger balance sheets seen in the last 1-2 quarters. It would make sense to take out some profits from steel and shift to aluminium where things are looking slightly better and the risk is less. But yes, the commodity cycle part is a bit tricky at this point.
Banks have been ranked underperformers. The price action in SBI has been quite heartening. Is it time to still remain neutral or underweight on banks?
Banks have been underperforming for almost about three months. We have seen some catch up happen in the last one week and as we see the unlock trade play out over the next few months, there could be some more momentum. The only point of worry is that HDFC Bank is telling you that on the personal loan front there could be some incremental asset quality issues. That could be an overhang for banks but overall the next 1-2 years look much better with provisioning, etc. We would definitely be overweight on banks at this point of time.
What is your take on opportunities in consumer staples?
Barring a few exceptions, consumer staples have been underperforming. The key reason is that there is no big surprise on the volume front. More importantly, in the current quarter no one is sensing that kind of a volume momentum to play out. Secondly, on the margin front there is going to be some pressure. When the broad market is doing so well with direct retail participation, the focus is not on defensives because the risk on trade is playing out with a lot of force. We like HUL and Marico. Because of the momentum play, the focus would be on midcaps and smallcaps.
