Money is moving into banks & NBFCs again. Here’s why

It makes more sense to be with the banking sector and though this quarter may not come out very clearly, there is some more headroom there, says Hemang Jani.

ETMarkets.com
We continue to like ICICI Bank and HDFC Bank and within NBFCs, there has been a strong comeback in HDFC Ltd, says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL

Are you still positive on banks making a comeback or a little cautious?
We are extremely positive on the banking and financial space and more so because in case of the couple of banks which have reported the numbers, the overall outlook and the numbers are pretty strong. More importantly, in the last couple of quarters, the overall weight of the banking stocks in the index has come down and we are seeing a rotation happening and some money moving into the banking space.

After the entire crisis gets over, at some point you will see a decent amount of growth coming back. From that perspective, we continue to like ICICI Bank and HDFC Bank and within NBFCs, we have seen a strong comeback in case of HDFC Limited and we are seeing some traction coming back into housing finance per se. It makes more sense to be with the banking sector and though this quarter may not come out very clearly, at least from a traction point of view, we see some more headroom in the banks.


What are you making of the trend and the commentary from the FMCG majors?
On a quarter-on-quarter basis, there is improvement in the majority of the product categories. In 80% of the portfolios, there is almost 10% growth and from a future point of view, the management is saying that the margin outlook would be much better going into the next few quarters. The rural part, which is a significant component of HUL’s business, is showing improvement in terms of growth and the discretionary category is also showing some improvement.

It is true that the volume growth is not good. But looking at the margin outlook for the next couple of quarters, HUL seems to have done a good job and continues to remain one of our preferred picks and part of the core portfolio.

There is a large block deal in BPCL. Based on valuations, GRM, crude prices -- is it a buy?
There has been a lot of ups and downs in this space but the price movement or wealth creation is completely missing and we are looking at too many moving parts -- be it in terms of the time frame within which divestment can happen, the crude oil price, the government policy given its fiscal situation and we are not too positive on the space, though we will keep on debating how attractive some of these PSU oil marketing companies are.
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At the end of the day, the market really wants to see some earning picture or growth clarity or some major action in terms of M&A reforms. Whenever that happens, it might open up some opportunities for players like IOC and HPCL but for now, we are staying away from this space.

The sanitaryware segment has been holding out very well within the home improvement category. Do you spot any investment opportunities?
We are seeing an extension of the positive data points and even the way the stock prices are reacting suggests that some of the tiles and sanitary ware and even plywood companies are making a comeback and because there is appetite, wherever you see positive data point, people would want to participate there. Even for paint companies, the last three months’ numbers have been pretty strong. In terms of any specific investment idea, we continue to prefer some of the companies in the paint segment, particularly Asian Paints. Unfortunately in the midcap space across these categories we do not have any specific name. But this trend looks quite positive and people would want to participate in some of the names like Kajaria or few other categories.

With good results coming in, could the cement sector see some buoyancy kicking in?
Absolutely. The ACC numbers and the management commentary point to volume growth is coming back with a bang in the next couple of quarters. We are seeing a bit of a price increase as well. When you see such a strong growth and pricing led recovery, then the operating leverage can be very strong. Companies like UltraTech, ACC, Dalmia Bharat can do extremely well from a short to medium-term point of view depending on the actual growth numbers. People are underweight in the cement sector and at some point, cement can definitely give a very decent upside from current levels.
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