Sameer Narayan on FIIs’ investing trend, rural vs. urban plays and more
Until rural demand returns, people would tend to be safer in the urban centric names.
It looks like FII selling is subsiding?
FIIs have now begun to come around to the view that there must be something that this corporate tax cut announcement last month would do for a longer term in specific corporates. Let us take Hindustan Lever. The results showed the volume growth was definitely a positive surprise because on a high base, they still reported 5% underlying volume growth.
For a company, which is probably the proxy for the way the consumer demand is holding up, it was definitely reassuring that the situation was not as bad and more importantly, the first wave of the numbers that we see would tend to be typically the better ones, more in line with expectations. But the more important trend from the FII perspective is that after the announcement, there was a decent rally up to say 11700 levels at the Nifty and then there was a very quick and sharp rebound.
FIIs are taking a selective view and investing wherever they find a correction has been done and the effective tax rate reduction will be more relevant from an earnings upside over the shorter or even the medium term basis. They are being very selective and as the results keep coming. You will probably see that this trend should play itself out on a more sustainable basis.
What do you make of the entire trend of promoters offloading their pledged shares? Kushagra Bajaj in seven months offloaded a sizable 29% stake in Bajaj Consumer. Do you think this is the last resort or would you take it positively that given this kind of a scenario they do not have a choice but sell family silver?
All promoters are mindful of what is playing out in the Zee Group and everybody wants to stay clear off it. It is a so-called fear factor in the room. So one thinks that today if there is demand and value, it is better that you try and deleverage even if at the cost of the selling family silver so that at least the debt overhang is addressed. Stock prices are volatile. Prices fluctuate in case there is adverse news and there is a very sharp price erosion. You do not want to be in a situation whereby you have to sell under compulsion where you do not have the right of refusal. It is always at the behest of the lender who then takes a call.
I think most promoters are sensitive and alert to the fact that till the time there is a reasonable value band which is exciting investors as well, it is better to raise some liquidity, get the debt off and ensure that the company and group is fully funded, That is pretty much playing out in everybody’s mind and it is not a bad thing eventually.
If you have to buy one stock where you are convinced that it will make money in one year, what will it be?
One year I do not know, but from a franchise point of view, Zee at the current risk reward definitely seems to be a business that should merit a look because their subscription growth is good. Zee5 is in investment mode and it is at least showing initial traction and from a point of view of brand recall and penetration, it is addressing a fairly decent genre of the Indian audience.
I think from a business value point of view, and from the fact that whoever runs this business is of course critical, but there is a lot of merit in the business itself at this risk reward and a market cap of Rs 25,000 crore at this price.
Do you think the festive boost in auto sales purely short term or do you feel perhaps there is some merit at these levels whether it is a Hero or Maruti.
It will be unfair to comment on one day price’s movement but the way most of these stocks are behaving in terms of the monthly numbers, I do not think there is going to be anything great in terms of what one can expect for incremental demand visibility.
Yes the monsoon has been good and the expectation from the festive season is definitely upbeat. The fact that liquidity in the system has been flushed out for at least four months now, people are expecting some amount of purchases will come through.
Now one has to look at how the whole quarter which is July-August-September plays out in terms of earnings because most of these auto names would also have seen a lot of margin impact because the sales happened at fairly high level of discounting. You need to have to see two things coming up. First, the sales numbers on change in momentum have to be visible on a month on month basis and the discounts also have to fall, because if that does not happen, it will not lead to any amount of investor confidence coming back from what has already been built into the price.
Demand is holding up in consumer goods. Urban or rural centric --which one would you buy?
Most of the index is marked by one or two biggies but on a broad basis, you rightly said that demand is holding up. The Emamis and the Bajaj Corps are the ones which are addressing the rural market more. Their premiumisation is not as much as the urban centric companies.
You are seeing that because the rural market demand has come off more than the urban ones that is why these stocks have not been even reporting as strong numbers as perhaps the other guys who are looking at the urban plays.
But having said that, the value proposition is perhaps better in the urban ones because at least there the demand visibility is higher. Unless and until, you see rural demand coming back, people would tend to be safer in the urban centric names.
Some of the PSU names -- Concor, BPCL -- among others are now the cynosure of all eyes. What is looking attractive to you?
Most PSUs that have been spoken about in terms of strategic divestment, which is Concor, BPCL, Shipping Corporation, have seen very sharp price moves recently. From the valuation perspective, most are probably now trading at the upper end of the value band.
But having said that, the government is showing an intent to make strategic divestments and let go of businesses. That itself would have larger implications in terms of the whole macro environment improvement because then people will start believing that the Rs 1 lakh crore plus divestment target has been put and we have only about three months to go, would need to show more comfort and confidence that yes that will indeed be met because otherwise the whole issue of whether we will be able to to the fisc target, will start coming under cloud.
The recent inflation data although has also tampered some of the rate cut hopes but the decline in growth perhaps causes more concerns and that is the reason why one would like to see it raising resources to keep the public expenditure going and front load quite a lot of it to enable demand recovery.
For that, people would look for some concrete move on the divestment agenda, the mention of some names. The names have been shared in the public space, markets have reacted but there needs to be something more in terms of seeing to it that the intent is actually put into practice and completed.
The Yes Bank stock has stopped falling. It is trading at a price to book of about 0.4 times. Why do you think?
The Yes Bank story has to play out and people are looking forward to the second round of fundraising, post the first QIP which was basically done to ensure that the bank moves forward. What is the value, what kind of investors come in and how much is the commitment, people want to find out. The kind of salary hikes and the increments that were reportedly given, boosted employee morale but at the end of the day one needs to look at how long will the ship sail and who is willing to back it.
The second round of fundraising has to be from a private equity/strategic investor who wants to be there for the long haul and that is very, very critical. So, the stock might have stopped falling, but I would want to know who wants to come on board for the long haul and be a part of the management and be accountable to investors. I would want to see that data point before anything else.