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On Midcaps
Going forward, investors are better off buying the second and third level of players rather than the leaders in a particular sector. So whichever sector you are positive on — be it banks or pharma or auto or auto ancillaries — the larger companies may not offer as much of a return in terms of outperformance. There is scope for PE re-rating in smaller and mid-sized players which have got hammered down.
In every sector, one should now look for the underdog. It may not be the best company and there could be some challenges as far as earnings visibility, balance sheet quality are concerned and even regarding corporate governance to an extent, but in the next 6 to 12 months if the market continues its move upward, then a lot of smaller and mid-sized companies should start doing exceedingly well and outperforming their larger peers. That would be a good investment strategy for the next 6 to 12 months.
On Reliance Industries
We are seeing a lot of institutional money coming into the markets and then get allocated to Reliance which has the largest market cap and highest free float as well. So to that extent, the company is benefitting and clearly it has created massive value in the retail-oriented businesses. However, the key question for Reliance now to move to the next phase of its upward journey would be the unlocking of the value which they have created in digital and retail businesses. Whether they will actually split the company and give shares to the minority shareholders or whether Reliance becomes a holding company that needs to be seen.
We ourselves are not great fans of holding companies because that is always a grey area as to how much discount should be given to the listed subsidiaries. Let us see how it plays out. It is a moving train and I do not think it makes sense to buy at these levels, but maybe at corrections, one could look at buying into Reliance Industries. But for the existing investors, it is best to remain invested and sit on the profits. Another 8-10% up move is certainly likely but the risk reward ratio is not in favour of making fresh investments.
On Financials
We need to focus on banks and NBFCs which have faced severe stress on their NPAs but have managed to survive and made all the provisions and taken the hit on their bottom line. Going forward, their provision costs will come down and profits will go up.
One could buy Reliance Industries on dips. But for the existing investors, it is best to remain invested and sit on the profits.-Dipan Mehta
Keeping that particular mini theme in mind, private sector banks such as IndusInd Bank and RBL Bank come to mind. These got hit by unusually high NPAs but they have the balance sheet and the management have shown intent and gone ahead and made large provisions which has impacted profits for last two-three quarters or so. Going forward, unless there is a major new NPA account, these companies will get back into rhythm.
Within the NBFC space, companies which have got the backing of large business houses like Piramal Enterprises or L&T Finance, are the companies we would like to focus on. We feel that going forward, their cost of money will remain subdued and they will be able to get their growth going and get back into that trajectory which they have enjoyed earlier. This is the time to buy the stressed out midcap banks and NBFCs which still have good management and which still have a decent quality of balance sheet and the ability to raise resources.
On SBI Card IPO
It will be a blockbuster IPO and investors like these are one of a kind companies. I am sure the track record is phenomenal. Something like credit cards has got a long, long way to go in this country and it is really a business which is coming into its own and getting traction. SBI Cards has built a lot of valueSo I would say that it would be amongst the better IPOs which may come out this year and retail and institutions will find it a very good opportunity to make money.
You could look at buying something like an SBI Cards even on listing. The way the structure of the credit card business is and the kind of charges they keep charging all the time, I am sure it is going to be a highly profitable business. Looking forward to the IPO from SBI Card, it would find a way into the core holdings for many portfolios, retail as well as institutional.
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