Nischal MaheshwariCEO, Centrum Broking, says monsoon and the earnings season could be the next triggers for the market. Maheshwari says: “HDFC Bank is our top choice and a smaller bank, RBL, also looks very interesting in the private sector. These are the two banks in the large and mid-cap that we are looking to recommend to our clients.
What are your thoughts on the market? It’s been going well and it looks like some consolidation could be good on the cards.
Nischal Maheshwari: Yes, post the recent RBI announcement where there was an indication that the policy is continuing and there are no rates on the horizon, the market has been quite stable. It seems to be consolidating around the current range and I think the next triggers would be the current quarter results and possibly monsoons.
What is the opinion of the private banking sector? If you had to make a bet on the top pick out there, what would it be? Would it be ICICI Bank, Axis or the good old HDFC Bank?Nischal Maheshwari: Private sector banks have been our favorites for some time now. We used to prefer the SFBs, but the larger banks have corrected quite a bit and that’s why we prefer the large-cap banks now. But our order of preference there is obviously HDFC Bank. Yes, I understand that HDFC will take some more time to get its house in order, but in the short term, the valuations are in its favor. Therefore, we believe HDFC Bank is our top pick and a smaller bank, RBL, also looks very interesting in the private sector. These are the two banks in the large and medium that we seek to recommend to our clients.
What about Paytm? Could that be a changing story? I know it was completely down and rightly so, the news feed was like that, but what next for Paytm around Rs 400?
Nischal Maheshwari: For now, it is best to avoid it because there are many other opportunities out there. Paytm needs to get its house in order. Yes, the Paytm bank is sorted now, but the model still remains a bit confusing. So, where will the income come from? How is the outlook? These two situations have very little clarity there. At these prices, I would avoid it as there are many other interesting plays that are available and obviously much cheaper.
Are you watching the sugar pack closely and if so, how would you recommend investors approach it?Nischal Maheshwari: We have sugar under our cover basically. But I think it was a disappointing year for sugar. In the last two quarters, sugar stocks have been underperforming. But recently we see that sugar production is better than expected and that’s why the government is allowing the sugar companies to divert some sugar production to ethanol and that’s why we see better days ahead for the sugar industry, for sugar companies in particular. Some of these companies look good at these prices, especially Balrampur Chini. It’s been our top pick for a while and at these prices you can start piling up the stock.
Anything other than what we talked about? Does RBL Bank, Balrampur Chini look interesting at these levels?
Nischal Maheshwari: Some of the smaller NBFCs, especially from the SFB pack, are doing quite well. If we look at the business updates, they have come out with spectacular results. One or two of them that we have recommended to our clients is Suryoday, a small SFB, it has done very well, another 40% YoY growth and 16% QoQ growth. So, I think it is available at less than one time book.
Another company that is dedicated to PYME loans, UGRO, is doing phenomenally well at about a 50% jump in the current year and also in the next two years, we believe it will get similar kinds of numbers. So, it is also available as a one-off book. These are some of the stocks where these are all small caps and can be viewed as a bottom approach.
Would you have a view on the metals sector right now and are there any investment opportunities here?
Nischal Maheshwari: I think that metals last quarter was a bit of a problem because on the one hand, the costs of raw materials are increasing and on the other hand, the price is not reacting favorably. So, this quarter’s results will be a bit of a challenge for the whole metal pack, especially the ferrous ones, we believe there will be a contraction of margins.
Going forward, there is some hope regarding China and therefore we are seeing some runs in the metals. I would be cautious at these prices and actually take profits as we continue to see strong Chinese dumping happening and therefore the domestic players have not been able to take price increases. So, a good time to take profits in the metal pack.
Can FMCG, not urban but the rural demand, see a recovery? We were just chatting with Skymet today and they are quite hopeful of a normal monsoon and that they think will help the rural recovery coming up. In bits and starts, seen GCPL, Marico also post decent Q4 numbers and hints of rural recovery clearly there. But would you say it’s time to invest yet?
Nischal Maheshwari: I would like to wait and see that there is a strong rural recovery. Our recent channel audits, we do it every quarter, and this time we specifically did only for the North India because the North India is where most of the FMCG companies emphasized that the demand is a little poorer than the other regions and it does. does not seem to indicate any strong recovery taking place on the rural side. And the one reason that was cited very strongly is high inflation in the rural areas and I think that is eating into the rural recovery.
I would wait for this inflation number to actually come down on a longer term basis before actually going out and investing in the rural focus stocks. Yes, current quarter numbers would be better because the companies are taking prices. Their margins may increase, but I don’t see a volume improvement happening.