Nischal Maheshwari, CEO, Centrum Broking, says monsoon and the earnings season could be the next triggers for the market. Maheshwari says: “HDFC Bank is our top pick and a smaller bank, RBL, also looks very interesting in the private sector space. These are the two banks in the large and the midcap which we are looking to recommend to our clients.”
What are your thoughts on the market? It has been going good and it seems like some consolidation could be well on the cards.
Nischal Maheshwari: Yes, post the recent RBI announcement where there was indication that the policy continues and there are no rate cuts on the horizon, the market has been pretty steady. It seems to be consolidating around the current range and I think the next triggers would be the current quarter results and monsoons possibly.
What is the view on the private banking sector? If you had to make a bet on the top pick 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 favourites for some time now. We had preferred the SFBs previously, but the larger banks have corrected quite a bit and that is why we prefer the largecap banks now. But our order of preference there is obviously HDFC Bank. Yes, I understand that it will take some more time for HDFC to sort its house but in the short run, the valuations are favouring it. That is why we believe HDFC Bank is our top pick and a smaller bank, RBL, alsolooks very interesting in the private sector space. These are the two banks in the large and the midcap which we are looking to recommend to our clients.
What about Paytm? Could that be a turnaround story of sorts in the making? I know it has been completely down and out and rightly so, the news flow has been such but what next for Paytm at thereabouts of Rs 400?
Nischal Maheshwari: At the moment, it is best to avoid it because there are a lot of other opportunities there. Paytm needs to get its house sorted. Yes, the Paytm bank has now got sorted, but the model still remains a bit confusing. So, where is the revenue going to come from? How is the outlook? These two situations have very little clarity there. At these prices, I would avoid it because there are a lot of other interesting plays that are available and obviously much cheaper.
Do you look at the sugar pack closely and if yes, how would you recommend investors to deal with it?Nischal Maheshwari: We do have sugar under our coverage basically. But I think it has been a disappointing year for sugar. In the last two quarters, sugar stocks have been underperformers. But recently we are seeing that sugar production is better than expected and that is why the government is allowing the sugar companies to divert some amount of sugar production to ethanol and that is 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 has been our top pick for some time and at these prices one can start accumulating the stock.
Anything other than what we have spoken about? Are RBL Bank, Balrampur Chini looking interesting at these levels?
Nischal Maheshwari: Some of the smaller NBFCs, particularly out of the SFB pack, have been doing pretty well. If we look at the business updates, they have come out with spectacular results. One or two of them which we have been recommending 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 which is dedicated towards SME lending, UGRO, is doing phenomenally well at around 50% jump in the current year and in the next two years also, we believe it is going to get similar kinds of numbers. So, it is also available as a one-time book. These are some of the stocks where these are all smallcaps and one can look out as bottoms-up kind of an approach.
Would you have a view on the metal sector right now and are there any investment opportunities here?
Nischal Maheshwari: I think metals last quarter has been a bit of an issue because on one side, the raw material costs are going up and on the other side, the price is not reacting favourably. So, this quarter results are going to be a bit of a challenge for the whole metal pack, especially the ferrous, we believe there is going to be contraction of margins.
Going ahead, there is some hope as far as China is concerned and that is why we are seeing some run up in the metals. I would be cautious at these prices and actually take profits because we still continue to see strong China dumping happening and that is why the domestic players have not been able to take price hikes. So, 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 pretty hopeful of a normal monsoon and that they think is going to aid the rural recovery coming in. In bits and starts, one has seen GCPL, Marico as well post decent Q4 numbers and hints of rural recovery clearly in there. But would you say it is time to invest just yet?
Nischal Maheshwari: I would want to wait and see that there is strong rural recovery happening. Our recent channel checks, 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 have highlighted that the demand is a bit more poorer than the other regions and it does not seem to be indicating any strong recovery happening in the rural side. And the one reason which has been 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 more sustained basis before actually going out and investing into the rural focused stocks. Yes, current quarter numbers would be better because the companies are taking price hikes. Their margins may go up, but I do not see a volume improvement happening.
