Neeraj Dewan
Director
, Quantum titles
What is the best strategy to participate in this market where benchmark indices are approaching a new high?
We are definitely heading for new highs, but today, after the Fed meeting, interest rate hike and statement, it looks like there may be a pause around those levels. I think we may have to wait a bit longer to reach these new heights, but we’ve had a very good season of domestic results so far. The major banking groups recorded excellent results, certain financial stocks such as L&T and
come out with a very good set of results from there.
Let’s see for a day or two how it plays out in the market after the Fed Chairman’s statement. If there is a correction, it will be an opportunity for people who are sitting with money to unfold. Finance is a sector where one can look for opportunities. We’ve seen a whole host of results and there will be enough pockets to put some money in. I think we have to wait a day and two and see what kind of little correction or pause or consolidation happens after the Fed meeting.
Let’s revisit some of your stock ideas that we’ve discussed regularly. The first was Ltd. and this stock has done reasonably well, but has underperformed Bank Nifty lately. With the merger underway, where is HDFC Ltd./HDFC Bank headed?
Basically, the idea was before the announcement of the merger. After that some slowdown must have happened because when this type of big merger happens there will be a lot of questions about how the combined balance sheet is going to look like and then some of the steering bandwidth gets sucked into the merger formalities. It is a tedious and somewhat longer process.
I think that’s what happened on HDFC, HDFC Bank’s price action and stocks were slower than what other financials did. But once this merger is done, it becomes a very solid company and it will continue with a strange 15% growth in the future. I am very positive and think it is better to buy HDFC Ltd. because the merger ratio means you get HDFC Bank cheaper. I’m still positive and if one has a longer term perspective, one should buy the stock regardless of the decline. The stock has certainly been one of the FII’s favorites. Every time we see FII buys coming, like the past few days, we’ve seen FII investing in the market and so we’ve seen a decent move in HDFC, HDFC Bank.
I think that will continue. Whenever there is a lot of money chasing you, bigger stocks and HDFC and HDFC Bank should be among the favorites there.
Indian health care has become an important benchmark for global health services. There are many factors that work for the hospital industry per se. What is your point of view ?
I think after Covid people have become a lot more health conscious and no one wants to take a chance now. Post Covid, we return to other ailments and diseases that had been put on the back burner. Now hospitals can focus on other facilities and other treatments are more lucrative for them.
In the future, the realization will improve even more and there are certainly more possibilities when it comes to even OPDs. They have different other facilities like medicines available in the hospital and there are so many different variables where they can generate revenue and meet the required costs that are needed in the hospital. I am always positive about hospitals and also in the future I think the execution and profitability should improve.
Would you go for the Bikaji Foods IPO or would you go for Medanta?
I would prefer Bikaji Foods among the two IPOs. .Medanta is doing well and the IPO is getting closer to what other listed stocks are trading at, maybe at a slight discount, but I still think that once inflation subsides, the food market is l where companies will improve their profits in the future. Then I would choose Bikaji.
Have you used the recent selloffs to buy and enter any of these stocks?
In fact, even after the fall we saw in Delhivery or
, equities are still not as attractive on fundamentals. We pick stocks purely on valuations but if we don’t get valuation comfort we won’t really look at the stock even if we miss opportunities like Nykaa’s good bounce we really haven’t used that opportunity and I feel that there is still a long way to go and we must improve profitability. A few quarters of good improvement may justify buying something like Nykaa.
While the sector is booming, the numbers in finance have turned out to be howls. Many brokerages call it a bump and not a trend and they think what they reported for the past quarter is unique. But if I look at the trajectory of 2 or 3 years of , although being a subsidiary of LIC, the company disappointed?
Yes, I absolutely agree with you. We’ve always been very positive about valuations, but we’re still getting this stock cheaper than other stocks. There are several reasons. They were unable to improve their ROA despite their size. Their ROAs are between 1 and 1.2 which is really not good for NBFCs like
Housing finance is concerned.
They kept releasing these bad sets of results even earlier. There have been instances of developer issues and other issues. There are more opportunities in other housing finance companies which are doing much better than LIC Housing. I really don’t think there’s too much potential here until we see a major improvement happening there, which probably isn’t very soon.
I’m trying to figure out what’s going on. What are they doing – merger, split, consolidation, split, global listing, dividend, debt repayment? Did I miss something?
It’s very difficult to assess what they will do next, but purely on fundamentals I think the aluminum, copper and zinc businesses have huge potential and going forward I also believe that , from a valuation perspective, the stock is still not expensive and has potential.
I will say invest in something like Vedanta, although what management does next is anyone’s guess and there were earlier disappointments from management. They had to learn from what happened two years ago and now, in the near future, there shouldn’t be something like this that’s going to be negative for minority shareholders. Purely on valuations, I still think Vedanta is a good bet to stay invested.
DVR outperformed the rest of the Nifty 500 for the week. There are a lot of theories floating around. Did you follow him?
Basically yes. We consider buying Tata Motors because we believe the stock has potential and whenever there is an improvement in China or the UK. Internal affairs have improved. When we reviewed both Tata Motors and Tata Motors DVR, the discount was substantial. It was close to 45-50%. Historically, we have seen that this discount should remain between 35% and 40%. I think the discount is shrinking and that’s why we saw this race in Tata Motors DVR and not Tata Motors. The discount is now closer to what it ideally should be.
What is the best financial stock to buy for one year, three years and five years?
If we talk about the shorter term, PSU banks still have potential. PSU banks grew 13-14% last quarter and management was still saying they could grow at that level. I think they were also surprised or maybe they weren’t so sure about the growth and the growth was north of 15%, close to 17-18-20%. Credit growth is strong in PSU banks. I see some potential in stocks like
or are still trading at a discount to their book value. These are the short term ones.
Even in the private sector, banks like
are still trading at a good discount to other private sector banks. I think this may be a title that can surprise on the upside over the next year and a half.
It’s been a while since we’ve had a new idea from you. HDFC, are all old
Right now we are looking at stocks that will benefit from falling commodity prices. These are stocks of textiles, loungewear, where cotton prices had really gone up a lot and they corrected in the last quarter. They are down and we can take a look at some of these loungewear stocks.
is one of them that has corrected massively from Rs 4,300 odd levels to Rs 1,700. This quarter may still come under some pressure due to the high cost of inventory, but as it took price increases, this will have impact on margins. But in the future, even commodity prices will show the impact. I think in terms of valuation, it’s an attractive area. So we can look at Lux Industries and a similar stock which is in textiles, loungewear where there is growth potential for the coming year.
So why not buy Page? It is a market leader. They own the Jockey brand and have very high yield ratios. It is a stock that institutional investors also own.
Absolutely
will benefit as well, but the pace that comes from second players like Lux is second to Page is higher and stock market returns may be higher there over the next year and a half. If one is a long-term investor, you can stick with something like Page because even in bad times the stock doesn’t correct itself like Lux did.
Over the next three to five years, we remain invested. Page may be the market leader and can still give better bets, but over the next few years, a year and a half, just based on valuations and beta that may play, Lux may give a better return.
