It is a complete blue sky scenario for the banking sector. They are over and done with all the credit cost due to the pandemic and the IL&FS crisis and now with the economy opening up, this festival season will be the best ever for the country and create a huge demand for credit, says Dipan Mehta, Director, Elixir Equities. It was an excellent Dusshera but not really turning out to be such a great pre Diwali? How do you try and protect your profits and your portfolio when it comes to some of the high beta midcap names now?I am slightly relieved that we are seeing this kind of a correction. There is a lot of froth building up in the primary markets and the secondary market and stock prices were just moving up because of a lot of momentum buying by retail investors. Such corrections are very healthy for the long term.Would you be willing to bet on the entire two-wheeler space and the incumbents or the traditional favourites that is Bajaj, Hero, TVS and Eicher?Well I think the space is getting very crowded and it is getting very confusing. Ola Electric certainly is a major risk factor for the entire two-wheeler industry because they are PE funded and can keep on making losses for many years and that will bite into the profitability of the traditional two-wheeler manufacturers. That is something which we have to take note of and as and when they scale up their operations, the existing two-wheeler companies will face pressure. In any case it is a highly competitive business. So, if you still have to buy a stock in the two-wheelers I would go with Eicher Motors which is in a completely different leisure segment and the threat from electric two-wheelers is not that much for Eicher as it is for Bajaj, TVS, Hero MotorCorp. That is my assessment but I am not too convinced about buying into any two-wheeler stock, it is just that I think Eicher will be slightly better placed, that is all. Where within the entire broader theme of the reopen trade, hotel names, aviation names, multiplexes, hospitality industry, would you find comfort to buy in in the current decline?I would go with retail. Companies like V-Mart, Trent, DMart and Titan of course, These companies have been underpinned a lot because of the pandemic and now we are seeing revenge buying taking place and more and more footfalls into their establishments. From a valuation perspective, from a long term trend perspective, we are positive on retail. Of course, aviation and multiplexes also should do well but there was never really a correction in these stocks and now that the opening up of the country has taken place, a lot of the gains have been priced into the aviation, the hotel companies and to an extent the multiplexes. Longer term negative trends post pandemic may impact these businesses as well. Have you been a buyer anywhere in the current decline which has taken place in the market or for that matter added to any of your existing positions?As a strategy we never do major trades during the earnings season. There is a lot of intraday stock volatility and we just like to get the earnings over and done with. There are usually many surprises and disappointments which we realise later on. It is best to just be in a wait and watch mode while the earnings season plays out. Unless something disastrous is coming out which merits immediate action, by and large we remain pretty much in non trade zone and look for good ideas which one can buy when the dust settles down and stock prices have reacted to what their earnings and management has to speak. So for the time being not participating in this correction at all. You can expect a 10-15% correction at any point of time by the end of this year or early next year. It could be this moment where the stocks drift further lower from these levels and then maybe a good entry point especially for investors who are sitting on cash. Would you say IT is a safe haven or given the kind of exuberance that one saw in the midcap IT space, would you say with IT as well you would like to tread with caution because the valuations are getting expensive even here?These are multi-year secular growth stories for the time being and one would see compounding of earnings for the next three to four years. So, something which appears to be expensive on a trailing 12-month or current year earnings may appear to be quite cheap if you look two, three years down the line. But as I said, there is a bit of an overvaluation. I would say more than that, the risk return profile is not favouring midcap IT at this point of time. If there is a 10-15% correction, that will be a good entry point as far as midcap IT is concerned. But largecap IT could be a bit of a safe haven if we see a further correction. The likes of Infosys, HCL Tech and Tech Mahindra were quite impressive if you dig deeper into it and there is scope for at least Tech Mahindra and HCL Tech PEs to be rerated on the higher side, given better growth momentum and earnings visibility. Now that most of the large private banking names are out with their earnings -- SBI, the largest PSU bank still remind -- what have you made of the performance? It seems the corporate banks are winning the race and clearly ICICI Bank seems to be leading here?Yes, that is right. There were stunning results from ICICI Bank and IndusInd Bank also came out with a very good set of numbers. I was a bit disappointed with Kotak Bank and HDFC Bank. They also came out with a steady set of numbers. I think that the likes of HDFC, ICICI, IndusInd, maybe Kotak and overall the Bank Nifty will take leadership positions over the next two, three quarters or so. It is a complete blue sky scenario for the banking sector. They are over and done with all the credit cost due to the pandemic and the IL&FS crisis which was there and now with the economy opening up, this festival season will be the best ever for the country and that will certainly create a huge demand for credit. All the large credit consuming sectors be it real estate, infrastructure, capital goods, expansion of capacity they are all revving up pretty well so you should see good demand for credit. So on one hand you will have net interest income going up, fee based income going up and cost will remain controlled because overall credit cost, the largest cost component will actually be declining for most of the banking companies.
from Economic Times https://ift.tt/3Cra24i
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