Sudip Bandyopadhyay, Group Chairman, Inditrade Capital, says: “The way I look at it, infra will come back with a strong set of numbers and so will defence. Apart from that, I am looking at a good set of numbers from BFSI as well as real estate. These are the four-five sectors which definitely will come back with good numbers. As far as other sectors are concerned, IT and FMCG will be a mixed bag. I do not think we will see a major pickup in earnings in IT. Cement, again, will be a little subdued.”
What are you making of the resilience of India equity markets? The fact that crude is already at $91, but the Indian markets are not really absorbing that hit so far and even the central bank seems not perturbed by the sudden spike that one has seen.Sudip Bandyopadhyay: Crude at $91 does not augur well for India. However, this has just happened and crude prices have been benign for a very long time and this sudden shooting up is predominantly on the back of two things. One is what is happening in Russia and the Gulf and also the Chinese demand suddenly picking up with possible economic recovery in China. Now, the combined effect of all these factors and somewhere I am sure the calculations are that geopolitical tensions will ease and production in Russia as well as the Gulf will stabilise.
But it is anybody’s guess where things will go because this is one commodity where I think every prediction is a guesswork, whether it is a good guesswork or a bad guesswork, beyond that it is beyond everybody’s control. So, under these circumstances, I think we have to be careful. We have to be watching this space because crude oil at 91 does not mean good for the Indian equity market and the Indian economy.
Quite a few strong banking updates are coming in for the fourth quarter. Anything that stood by for you or stood out for you?Sudip Bandyopadhyay: One underlying theme on the updates was very clear that everybody is focused on deposit mobilisation. That has become the driving factor and I think some of the bank MDs I was hearing the commentary as well, I think they are clearly focusing on mobilising deposit at this stage and I think it is a good thing HDFC has done it and pretty much RBL has done it, Yes Bank has done it. All other banks are focusing.
It is important to mobilise deposits at a reasonable cost so the margin does not get impacted and the loan book also can grow seamlessly. So, it is a good development to have happened. Banks are focused on deposit mobilisation. Apart from that, asset quality by and large, other than one bank – ESAF Small Finance Bank – which had a challenge on asset quality, rest of the banks’ asset quality also has been either stable or has improved. So, I would say in BFSI, we are probably looking at a good set of numbers when they announce the financial results sometime later this month or earlier next month.
Soon we will have earnings trickling in. Prima Facie, what is the anticipation? What are going to be the strongest sectors?Sudip Bandyopadhyay: The way I look at it, infra will come back with a strong set of numbers and so will defence. Apart from that, I am looking at a good set of numbers from BFSI as well as real estate. These are the four-five sectors which definitely will come back with good numbers. Month-on-month updates have very clearly indicated that the business is robust and the margins are also improving.
As far as other sectors are concerned, IT will be a mixed bag. I do not think we will see a major pickup in earnings in IT. Cement, again, will be a little subdued because the price increases which we thought will come had not come in last quarter, probably are now coming in. FMCG, will be a mixed bag but by and large it will be a subdued kind of a quarter on account of slowdown and not picking up of rural demand.
What is your take on the entire insurance and stock market related stocks as well – be it CAMS or a CDSL, or insurance stocks like ICICI Lombard. They are coming back?
Sudip Bandyopadhyay: One thing we must understand is what is a long-term trend. The long-term trend definitely is financialisation of saving and when that happens in the economy at a pace at which we have been seeing since Covid, all these financial infrastructure providers benefit and that is what has happened and the market also has given thumbs up, whether it is a CAMS or a CDSL or a BSE or an MCX or some of these listed broken companies, Angel, Motilal Oswal – all of them have benefited handsomely.
I think this trend is going to continue. I also must include the asset management companies and insurance companies in this space. Apart from general insurance, financialisation of savings theory or theme runs across all this. As far as companies in the insurance space are concerned, we have been bullish on the life insurance space for quite some time and we maintain our view. But one must understand that this is not a quarter-on-quarter kind of a stock or an investment theme. This is a long-term investment theme.
If you understand what is happening in the insurance space, I think it is a great buy. India is grossly under-penetrated as far as life insurance is concerned. It is much more under-penetrated even compared to some of the smaller poorer, smaller Southeast Asian countries. So, insurance penetration is definitely going to increase and that is definitely going to benefit all these organised private sector players definitely in a disproportionate manner.
We are bullish on SBI Life, HDFC Life and Max Life. These shares can be picked up for one-year hold even at current levels. One also must remember that what is being talked about is that the new government is going to bring an insurance bill which is going to drastically improve the operational matrix and operational process for the insurance industry as a whole. We will wait for that but good times for the insurance industry are definitely here.
What is your view on the infrastructure sector? NBCC was up 10% on Friday, NCC up 7%. IRB infrastructure is up 6.5%. Are these just election related moves or there is a structural story at work here as well?
Sudip Bandyopadhyay: I think the moves which happened on Friday may be related to elections or something else, but one cannot deny the fact that there is a structural story behind it. Look at the kind of capital expenditure the government is doing behind infrastructure, construction and railways. This is once in a lifetime development. One sees this kind of investment going into these sectors and under these circumstances, definitely the infrastructure and construction related companies will benefit.
So, whether it is cement, EPC contractor or road contractor, they will all benefit. Now, one has to pick up these stocks and if somebody has to pick up stocks, I would again come back and recommend Larsen & Toubro. There should not be any question in anybody’s mind about L&T. I think it is the best company in India as far as this infrastructure and construction is concerned. They have been doing all the right things and ticking the right boxes. Also, more than 33% of their order book is now coming from the international market, predominantly Saudi Arabia, where they are a predominant infrastructure provider and the margins are much higher in those businesses. So, overall, the margin profile is changing and L&T can definitely be picked up. Amongst the other infrastructure plays, some of the names you mentioned can also be looked at, particularly NCC can be looked at.