What are your expectations from HDFC Bank and what will it take for it to at least perform with the rest of the Bank Nifty if not become an outperformer?
I think it will be another steady quarter in my view. If you go as per the December filing they did, their advances grew about 16 per cent. With the advances now touching about Rs 12.6 lakh crore, the liability side is shaping up well at Rs 14.5 lakh crore. The CASA now makes up and always has been high, it is about 47 per cent of the total deposit base. I think we are seeing an uptick in even the wholesale and the corporate lending book. Also, I think, a lot of the issues in terms of change of guard, the embargo on credit cards, the tech glitches they have had through net banking are clearly behind us. I think their market share has improved again since the embargo has been lifted, they are back at almost 24 per cent market share. I see HDFC doing a lot of fintech tie ups in terms of driving the next leg and I have been saying that the next biggest wealth creator would be a digital bank. So I think it would be steady and I do not expect any negative surprises as far as HDFC Bank is concerned.
What is your take on some of the smaller banks?
One bank which I do like in this is Federal Bank. Another is City Union. I think they have better asset quality metrics, better track record, but I would stick to the larger ones including and SBI. ICICI in particular I think there is a remarkable turnaround happening so if you see the credit growth it is outpacing HDFC Bank growing at 18-19 versus around 16 per cent for HDFC. It took the advantage of the embargo RBI had on the card business. They are now number three and digitally, I was pretty impressed with what they are doing across lending, payment and various platforms including the SME platform they have come up with. SBI again, if you see the last three years, the gross NPA is down almost 40 per cent and some of the asset quality metrics are actually comparable to the private banking peers. So I would stick with the larger ones purely on a risk reward basis and considering that Bank Nifty is back at 38,000-39,000 and not at 35,000.
A lot is being said about capital goods stocks. Are they going to make a comeback? What is your take on banks, manufacturing stocks, textile stocks?
L&T has been a relative underperformer in the entire cycle. But things are shaping up. I think the government is trying to revive the investment cycle. If you see their order book it is upwards of Rs 3 lakh crore. If you see the tendering activity and that is across verticals you will see a pickup. If you see the Q2 numbers they showed remarkable execution skills, the working capital was not stressed, the EBIT margins were maintained despite the pressures on raw materials. There could be some slight disruption with the Omicron wave and some restriction on economic activity, but that does not seem to be like what it was last year around wave-2. And they have a revised capital allocation policy, they have a clear plan in place, they want to divest the non-core businesses. We have already seen some non-core businesses getting divested so I think that is the best way to play it. The other way to play it also is to look at some of the commercial vehicles. The space which I think would be a broader beneficiary of this revival in capex cycle. Also, the logistics I think something like a Container Corporation or India. That is another sector in my view which can be looked at in terms of playing this entire, I call this as a capex cycle, I am not just confining it to capital goods.
In the current market, are you tempted to book profit?
I believe more on a buy and hold strategy. But few pockets do concern me in terms of valuations getting stretched and I think market has been pretty brutal when it comes to it. That’s what you are seeing with new IPOs. I think while we are coming almost closer to the new all-time high, we have stocks which are down 30 per cent to 50 per cent. So, I think market is a great leveller and some bit of rationality is getting restored. I think IT would continue to have robust earnings growth, I think housing as a space has seen clear revival so this entire home improvement themes continue to do well and even healthcare so I think be (2:56) there are earnings and avoid the hope trades and things which are the next disruptors because lot of time you know the price more than captures it.