What do you make of this sort of a move in the market? A lot of people have tried to time a correction. Do you think all of that is now coming to reality and this makes the market healthy?
It does. It is too early to call whether all pockets have become healthy or not. There has been a very sharp sector rotation in the market. For example, in banks, the correction has been a little deeper. Even top private sector banks have corrected 15-18% versus 8% for the Nifty. We have not really seen a serious correction since the March lows. We did get a 7-8% correction during the second wave.
I think some of it is healthy, some of the pockets are still looking expensive and one may start nibbling in some of the pockets. Probably we have had a beta year where everything went up and now is the time to be a little selective. So go for stock fundamentals, go for earnings and gradually buy what is looking good.
If you have to choose a bank or a metal or a pharmaceutical stock, what would be your criteria right now to buy except that the price has fallen?
Talking about banks, has probably had the best ever quarter after a long time. The gross NPAs are down, the net interest margin, core operating performance continue to do well. The restructured book is well below the guidance. Looking at the provisioning they have done, there will not be much shocks on the credit cost front. Also the fee income is steadily inching up. Their credit growth was 18-19% versus 7% for the industry. So it continues to gain market share.
Some of the API names have seen a healthy correction, largely because of the margin play and raw material disruption. Anyways, the business is lumpy. One can have a few quarters where the order book can shift over to the next quarter. Some of the good names here include Divi’s. While the pharma sector is up today, from the peak price, there are a lot of APIs and CRAMs names, which are about 20% cheaper. These can be looked at.
We are continuously adding more than a million demat accounts a month, I think even the non financials, the depository, the AMC, insurance businesses look good.
The reopened trade stocks have been holding out very well. At what point in time would you be tempted to buy a PVR or an Indian Hotels?
We should not try and second guess in terms of how banks are going to be in terms of curtailment of economic activity. So let the latest event play out. There are better opportunities to track. Valuation is not just on the basis of price correction alone, value is in terms of whether you are expecting a solid, secular growth in earnings. I think that is a trap one should definitely avoid.
There are good names which probably will have a very robust next quarter earnings. Those are the ones, one should be more invested in.
With Nifty@17000, would you be a buyer? Is it a decent time to start putting in a little bit of money?
If you are not really worried, probably that says the financial plan is in place. There are a few positive developments. In telecom, there have been tariff hikes after a long long time — 25% by Airtel and another 20% by Voda. Chances are Jio would also do it at probably a slightly lesser percentage. That will add another Rs 8,000-9,000 crore to EBITDA in the case of Bharti. Their African business is doing well. They are picking up even in the home and broadband. That is one sector which after some time will start to look healthier.
I have pointed about some private sector banks and some of the API and CRAMs names and selectively look at some of the technology names also in the case of some correction because of the transformation to digital, cloud migration, data analytics etc. These are long term themes and even markets are differentiating.
