Does it seem like it is going to be a repeat of what we saw last week or is there hope of it being a little bit better?
Over the weekend, Reliance and
results came out and these were positive and above expectations. That should provide some support to the markets in the near term. The main issue in the markets is more macro related to inflationary spiral, the rising fuel prices as well as the impact of that, potentially going forward on consumer demand as well as interest rates.
So that remains a recurring theme which puts a cap on the valuation. Good results are required at this point of time to support the markets to some extent because the macros have turned adverse not only in India but globally as well. Foreign funds outflows out of India should continue given this outlook and a further clarity on outlook will come over the next couple of weeks. Once the Fed meeting happens and they give guidance on how they are going to proceed with tapering and their interest rate outlook, the market will be volatile.
Is there merit in believing that ICICI Bank is going to maintain its leadership within the private banking names or could HDFC Bank play catch up?
HDFC Bank is a pure bank story because most of the subsidiaries of the HDFC lie under it.cWhereas the story in ICICI Bank is separate. Its subsidiaries — be it the insurance subsidiaries, securities, AMCs — all are doing very well and that will add substantial value to the bank and that has been adding value to the bank. On top of that, the banks do very well in terms of both low cost deposit growth as well as credit growth and the current quarter results were without the bank touching its Covid provisions of Rs 6,400 odd crore. It can potentially use that in the future.
So asset quality trends are pretty good and the management is not very aggressive like their commentary on housing loans was cautious because they were saying that interest rates are so low that they have to lend in a manner so that it would impact their asset quality going forward. And at net NPAs below 1%, the valuation gap should keep on reducing between ICICI Bank and the other banks like HDFC Bank or Kotak Bank. My guess is that the case for ICICI to outperform does not reduce, it actually gets stronger.
There is one sector where expectations are very low and that is the pharma space. Last time expectations were high, a bad set of numbers came and the stocks tumbled. Could the reverse happen this time with the Dr Reddy’s and ?
Purely on valuations, the stocks have come off and are more reasonably priced now. But on earnings, I still have my doubts. I would still think that earnings might not be as great given the fact that on the domestic side, there will be a tapering off of demand for a lot of medicines related to Covid and health supplements and all. There is a tapering off of domestic demand and overseas pricing pressure as well as cost pressure still remain.
But where I will agree with you is that this is one sector where valuations have gone up significantly. There will be potential for some sort of bottom fishing over the next few weeks. Both Cipla and Dr Reddy’s one could be looking to add them but I would like to wait out the results and also wait out some more time especially Dr Reddy’s seems to be coming into more of a value zone now.
