.jpg)
4 hours ago
1
"Kotak as all of us know used to trade at price to book of six times five years back which was quite obnoxious. It has come down to two times which is reasonable, like in line," says Sandip Sabharwal, asksandipsabharwal.com.
As we walk into trade this morning, there is a lot of news flow. Let us start with banks, Kotak and SBI. You have been bullish on Kotak for a while, but numbers do not cut a lot of eyes. I mean, they are not impressive at all. What went right, what went wrong for Kotak for the quarter gone by?
Sandip Sabharwal: Kotak has been more of a comeback to normalised valuation trade at a time when they were facing issues related to RBI restrictions on some businesses. So, those have got removed now and to that extent they are in a better state.
So, Kotak as all of us know used to trade at price to book of six times five years back which was quite obnoxious. It has come down to two times which is reasonable, like in line.
So, today on valuations, on a price to book basis, it is cheaper than HDFC, ICICI, etc. That said, we have seen the first wave of the move towards normalised valuation from suppressed valuation play out.
The results which have come out because of that there is no case for any significant immediate up move because results were subdued on most parameters except for asset quality which obviously has improved and that is the key feature of most bank results that they have not tried to show higher profits but most of the banks have focused on keeping the net NPAs low by even providing higher and which is good for the overall health of the banking sector. Kotak should remain rangebound for some time.
Directionally for banks, large banks things should be okay because while reducing rates in the short term by the repo rate reduction, its margins, but it improves the prospects of credit growth over the longer term. So, six months down the line we should see credit growth start to also pick up for banks and that will be positive.
So, let us look at the banking space. In banks, we can only do the following, identify the outperformer, identify the underperformer, and perhaps also talk about the market performer. So, within the banking space, give us names what could outperform from here, what could underperform, and what could be a market performing basket.
Sandip Sabharwal: If you look at managing asset-liabilities where they are able to hold the NIMs, ICICI Bank has done the best and that is also reflected in the stock price movement of the bank. So, ICICI Bank will continue to do well.
Axis Bank is cheap relative to all other large private sector banks and under the current management it has been very conservative in managing its balance sheet.
We should always like conservative managements in banks not aggressive ones. We have all seen what is the fiasco in IndusInd Bank, etc, so they will do well. And SBI I believe is very cheap on valuations relative to its size, the fact that it will still grow at market rate and the net npas, if you look at the asset quality of the bank, it is the strongest in so many years.
It is underappreciated. I believe that there is no reason why SBI should trade at one time book and many other large private sector banks should trade at two-and-a-half, three times even with the PSU backdrop. I would think that re-rating of SBI should happen over the next couple of years.
Did you look at Avenue Supermarts numbers? Weak numbers. I mean the competitive intensity is something that we have been working with and talking about as a threat for many quarters now. But do you think it is in the price? I mean, the stock I was just looking at it from 3,300 thereabouts, it has already climbed up to 4,000, still a long way to go before it hits it 52- week high of 5,400 thereabouts. How much of the negative news you think is already in the price for DMart?
Sandip Sabharwal: I would rather think that a lot of more positives have been built in because people assume that profitability will come back which it has not. So, in a way as far as long-term strategy goes what they are doing is right.
They are finally recognising competition, the fact that they need to address competition head on and also grow aggressively, so they cannot be stuck at the same number of stores and just maintain profitability.
So, they have to take a hit on profitability in the short run in order to capture or retain market share or grow in new segments long term, so their strategy is good long term but in the near term the earning picture does not reflect any upside potential. I would think that the stock is very-very highly valued at these prices.
We have spoken about banks. Let us look at a larger list of stocks where you think largecap, midcap, and we will use the criteria of market underperformer and outperformer. Market performer, I mean no point in discussing it. What to your mind are some two-three stocks which can outperform the market and which are some stocks which you think now run the risk of underperforming because of news or valuations?
Sandip Sabharwal: Among the largecap if you see, Reliance has started its outperformance cycle now, so that will sustain for the next couple of years. So, when an initial move happens, a lot of people think, after a long-time people think that it has already done but what the management is speaking of in terms of getting returns from new energy ventures, etc, that will help valuations or improve from a derating cycle over the next three years to rerating going forward.
Other than that, many auto, infra stocks are underestimated in terms of growth potential this year because the managements will be most bullish when growth is high, they will be most bearish when the growth is low.
But we have to look at the macroeconomic parameters in terms of tax breaks, lower interest rates, etc, and I believe that will boost growth of many segments in the economy domestically as well as lower rates will help the profitability of many infrastructure, capital good, etc, companies. So, these should be segments people should focus on.
English (US)