IT is the clear winner when it comes to the earnings season. , the dark horse, is finally catching up with the tier-1 companies’ valuations. Your take?
Indeed. Tech Mahindra has been an underperformer within the IT pack and now the company’s growth rate is accelerating. It is still making about a 20% plus ROE. Various 5G initiatives are now taking shape across the world and Tech Mahindra is a beneficiary of that. Plus media, retail are sectors which are opening up from an IT spend perspective. Now the cycle of the sectors which would benefit Tech Mahindra are falling into place and it still has a good growth curve ahead of it and. It clearly looks good.
is down 10% due to the deferment of a board meeting of for a dividend payout. Last couple of days, of course, the metals have been the big winners, especially after the earning season. What do you make of Vedanta now?
You are right about metals being strong. The outlook for metals will continue to remain strong. But Vedanta is a stock specific story but it has got a number of moving parts from how much they are going to buy out, what is the dividend payout and also the shareholders actions. This is a stock which is quite complicated. There are a number of moving parts. I would stay away from Vedanta.
Hospital stocks and in particular is doing well. What are you making of this entire story and how is it building up?
Apollo is a well run hospital chain. Last year, most of the occupancies were Covid occupancies and elective surgeries got postponed. After the second wave this year, some of the elective surgeries are still coming back. Occupancy is improving and non-Covid revenue is also coming in. So that is a good trend towards normalisation. Secondly, their pharmacy business is also seeing traction. They have carried out some corporate actions in keeping the backend separate from the pharmacy businessIt is a very shareholder friendly move.
Thirdly, the Apollo 24/7 app story is still largely not well disseminated. This app allows the patient to connect with doctors not just within their own town but with doctors in any other city across India and across specialities. So this provides a 24×7 access for various specialities. Helping the growth of 24/7 is the Apollo brand name as it is a strong hospital chain with actual points of care. The app also allows one to buy prescribed medicines and various other ancillary items. This is going to be a very big value driver and when you sum up all these parts of the hospital, the pharmacy and 24/7, there is a lot more embedded value in the stock.
Leadership in bank stocks is now in the hands of SBI and ICICI Bank. Should one use the dips to add more positions in ICICI Bank and SBI?
ICICI Bank and SBI look good. Valuations of some of the equally big names are not on their side given that credit growth is one of the lowest for the banking sector for the last 20-30 years at 5-6%. It is the lowest number that the banking sector in this sector has seen. Now SBI trades under book or maybe close to book whereas ICICI has a number of factors going for it.
Canara Bank, a mid-size bank, is going for a QIP. Post the QIP, the balance tier-1 capital will be stronger, its ROE will improve from 11 to 13%, it’s net worth will improve. It will position the bank well for an eventual India recovery and therefore credit uptick. It is trading at about 0.6 times book.
There are a number of similar stocks in the banking sector. It is all about waiting and watching and hoping that the credit cycle starts sooner.
