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Hemang Jani on SBI, ITC, Axis Bank and more

For stocks like Axis Bank and ITC, there might be a bit of pause but there will be eventual up move.

ET Now|
Sep 26, 2019, 10.17 AM IST
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Additional positives coming from falling crude prices would help and we should focus on buying into the interesting themes from medium- to long-term perspective. We continue to be extremely positive on the market, says Hemang Jani, Senior Vice President, Sharekhan. Excerpts from an interview with ETNOW.

Crude has moved as per the script. Post the Saudi terror attack, there was a spike and reassurance came from the Arabs. They have restored part of the oil supply and crude has gone back to the levels before the terror strike took place.
Crude going back to that level and the fact that there are indications coming from Saudi and other oil manufacturers that the overall supply would be maintained, is definitely good news for India and emerging markets. More importantly from our market perspective, the corporate tax cut has created a momentum. Additional positives coming from falling crude prices would definitely help and we should focus on buying into the interesting themes from medium to long term perspective. We continue to be extremely positive on the market.

In light of the recent concluded QIP by Axis Bank, if the stake sale was to go on, would that put a cap on Axis Bank’s share price?
As there is a sudden improvement in the sentiment, it remains to be seen what is the size and at what price they are able to do that. But more importantly, the entire stake sale by SUUTI would be in two parts. First one would be through Bharat ETF. The other one could be through an OFS (Offer for Sale). Typically, OFS’ happen at a certain discount to the current market price and the price tends to cap around that level for a short term. For stocks like Axis Bank and ITC, there might be a bit of pause and eventually we will see a decent amount of up move in the stock as the overall sentiment turns better.

What is your thought on SBI? Why did the stock crack 7.25% in the futures yesterday? Do you also believe like Morgan Stanley’s note read yesterday that for SBI, NPA stress is going to persist for a few more quarters?
There are two or three factors. One is that post the tax cut announcements on Friday, ten-year bond yields have gone up almost about 50 bps and that does not bode well for the PSU space because there is a lot of investment and exposure there.

Secondly, the concerns over elevated NPLs and more importantly because of external benchmarking and the complications that may throw up for the companies have a larger component of the housing finance portfolio. That could also be the reason we are seeing some weakness in State Bank of India and the companies in the housing finance space.

What is coming out very clearly is that some of the private sector banks are better placed to navigate this phase of bond yields going up. There’s a bit of concern on NPL and external benchmarking. The feel is that ICICI Bank and HDFC Bank are better placed vis-à-vis State Bank of India.

Why is ITC trading at a 10-year low in terms of PE multiples and valuations when every other consumer stock in India is trading at a record high?
The fact is a large part of the operating profit that ITC makes today -- 75% to 80% -- is coming from cigarettes. We can all debate that the FMCG component of the business they have invested over the last seven-eight years, in terms of the top line, is looking pretty good; but the net profit is no way comparable to a similar sized FMCG company. So, there is a long way to go for ITC when it comes to the FMCG and the food part of the business.

Things are looking pretty stable for the cigarette business. The fact that no incremental cess has been introduced is also positive for them. So yes, in terms of valuations, it is looking pretty interesting. But as we discussed earlier, if the SUUTI stake sale is done and if there is an OFS, then it might put a bit of a cap on the price. But overall, in terms of value, it is looking attractive.

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