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Manappuram, Muthoot & Bajaj Finance good long-term bets: Sudip Bandyopadhyay

‘Do not take a top down approach at the market at current levels’

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Last Updated: Jun 02, 2020, 07.32 PM IST
Sudip Bandyopadhyay
Bajaj Finance definitely has a fantastic balance sheet and a fantastic track record and business.
Kotak is a fantastic bank and has a great management but at current valuation, I am not a buyer, says the Chairman of Inditrade Capital.

How are you reading into the market momentum? Are we getting ahead of ourselves or do you think it is in line with what we should be reading on the screen?
It is very much in line with what is happening in the global markets. There is enough liquidity and that liquidity definitely is going to come to emerging markets like India where there are still opportunities for growth. Since the time the rally started and the market started moving upwards, FIIs and FPIs have been investing rather heavily and in spite of the DIIs selling, we have been continuously doing okay because of the FII buying.

The other factor which helped the rally definitely was the lockdown getting opened in a phased manner over the month of June and that is pretty much front loaded. I think by 8 June, most of India is going to go back to work and that is excellent news from an economic and market point of view. The second thing which is quietly playing in the background is the good news about monsoon and all the private agencies are predicting a better than normal monsoon; 102% is what is being talked about. The monsoon has hit the Kerala coasts; so it is definitely good news for a country like India, which still has about 60% of economic activity in and around monsoon.

However, there are a couple of words of caution. I think we have not seen the end of the virus. Yes, the government has been trying and efforts are being made to come up with the vaccine but that has not happened yet. Whether the virus will come back and there will be a second leg of shutdowns is not certain yet. While we are all excited, the fact is the first quarter of the current fiscal the corporate performance is going to be abysmal; two months are lost and in the third month, we are trying to get back to activity. So Q1 is going to be a washout. Q2 will be a period of recovery. The only growth, if at all, will come from Q3 onwards, which will coincide with the festive season. So a word of caution to the market and the investors should keep in mind that there are opportunities but in select pockets and select scripts; so taking a top down approach at the market at current level may not be advisable.

Financials having had a very steep fall all throughout March and April and some of them are getting close to the value zone. Do you think that is what is playing out in the market right now with this recovery? Is the FII money really chasing financials because they do have the largest weightage?
To an extent, what you are saying is absolutely correct. The financials were looking oversold and there was rationale in some amount of recovery because the valuations were ridiculously low in certain cases. Remember, some of these companies have strong balance sheets and they have a fantastic franchise and as soon as the Covid situation subsides or the lockdown gets lifted, they will be back in business with the bang and there is absolutely no doubt; whether it is the large private sector banks or some of the well-run NBFCs.

Two, if you assume that the Indian economy will stage a recovery, financial services has to be the one leading that recovery and financing that recovery. If the assumption is that the Indian economy will have a 4% GDP growth in FY21 and it will go up only., financial services has to be the wheel or has to be the fuel on which this will happen. So naturally, when FII money is coming, they will definitely look at our good quality financial services stock where there is a tremendous upside over the medium to long term.

Bajaj Finance definitely has a fantastic balance sheet and a fantastic track record and business. But I will also like to point out some of the smaller NBFCs, which have got a solid business and which did not get affected by the concerns surrounding corona. I like to talk about the gold loan companies. The basic question in everybody’s mind was the asset quality and as far as financial services companies are concerned and to that extent, when you are talking about the gold loan companies, one should have any doubt about the asset quality because the security of gold and gold values have not come down sharply. Actually some to an extent have appreciated. So the question of the NPAs arising in case of gold loan companies to a great extent does not arise. The valuations were actually very low. So I prefer Manappuram on the valuation matrix or even Muthoot Finance can definitely be looked at even at current levels. Bajaj Finance I will say, if you are a long-term investor, you can look at it because it has already moved up and I have a little doubt as to how far it can move up in the immediate future. But the fact remains, these are long term good buys for patient investors.

What is your specific take on Kotak Bank now?
I think it is definitely good in the short term. There is no overhang post this sale by Uday Kotak. Also, the free float increases; so the weight in the index should go up. So that is good news from a short-term investment point of view and that is pretty much getting reflected in the market. In the medium to long term, I am not a buyer in Kotak Bank at current valuation. I think on a peer comparison basis, it is looking a little rich in value. Also, the fact that the conservative lending practices of Kotak Bank probably will not show the kind of growth numbers which can go with the multiples which Kotak is quoting right now.

It is simple. If you have to grow very-very rapidly, a high multiple can be justified but knowing the practices that Kotak Bank follows, the growth will be subdued and will not be scorching over the next one and a half years. So under the circumstances, the kind of multiples it is enjoying are not really comfortable. Otherwise it is a fantastic bank and it has a great management. There is absolutely no doubt about the quality but at current valuation, I am not a buyer.

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