Use fall to add tier-1 banks, capital goods stocks: Pankaj Pandey

“If the capex cycle picks up, then I would want to believe that PSU banks could outperform the private sector peers but in general, both private and PSU tier-1 banks are looking attractive and should be bought in the weakness. In fact, that is the only pocket one can look at, ” says Pankaj Pandey, Head Research, ICICIdirect.com.

From an Indian perspective the need of the hour I guess is capital protection. Where would you be tempted to suggest to your clients to actually take profit? Also, would you be willing to buy anything in the decline or is it like catching a falling knife?
While we could see a knee jerk reaction, my sense is that sanctions up till now have been mild and while inflation is a threat, that is going to help in sector rotation and that is where we feel that banking as an overall sector, especially the tier-1 private sector banks, are very well placed. We are already behind asset quality concerns and we have not seen much of a price performance. Valuation wise also this pocket looks okay.

In addition to that, capital goods is another sector which can be looked at whether you look at a stock like L&T and a number of other tier-2 names. As the Budget had clearly focussed on capex, I think this is another pocket which has seen relatively resilient compared to the other segments in the recent past.


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So from a capital protection or a buying perspective, banking and capital goods look attractive. Within the sub segments or within the other pockets, recovery plays and especially hospitality players are what can be looked at because if we are not going to see any further Covid waves, then potentially we will see a good recovery for that particular segment and the entire hospitality lot looks attractive.

These are the pockets one can look at and in terms of correction, IT would be a low hanging fruit given the fact that this sector has done well in the past few months. One would expect profit taking in IT.

Overall our sense is that if the sanctions are milder and we do not see much of a challenge or much appreciation in crude, we could see a sharper recovery as well because if the crude were to rally too much, then it could impact global growth and that is where the challenge could be. In case the crude does not rally, then besides the knee jerk reaction, I would want to believe that markets could witness recovery in the post Fed meeting.

If gold and oil prices are going to go higher, that is never good news for the Indian economy. Having said that, what is your reading on this? Is it going to be short term? By mid March we should have more clarity where it is all headed. What is the advice till then?
On the crude oil front, up till now, sanctions have been milder and our sense is that Europe does not have much of a choice. In fact, even the refineries are designed for Russian crude and one really cannot do much on the crude oil front. And with crude prices already at elevated levels, even the US Fed may not go in for aggressive rate hikes because that will have implications in terms of growth for themselves and also for the other geographies.

Our view is that if crude rallies too much, then they will be forced to take very aggressive rate hikes. If crude normalises at current levels, then recovery could happen in the markets as and when the US Fed meeting gets over. That is the biggest risk. It does not look like Europe or the US has much choice in terms of sanctioning which will have implications for crude. So besides this knee jerk reaction, we want to believe that the market should recover as and when this event gets over.

Do you think an added trigger for our market is also the upcoming LIC IPO?
I will not be able to really comment on the LIC IPO largely because we are one of the lead managers. But having said that, the challenge for some of the insurance companies is that they have got a balanced portfolio whereas if LIC focuses more on say non-participating products, then within insurance, we could see some reshuffle. So that could be a case but I do not think the overall weakness is largely driven by the LIC IPO.

Many of our experts since morning have been saying that it is time to buy the blue chips and stay away from any other space. If you really want to buy this dip in the market, clearly private sector banks is one category which has really propped up along with some of the other spaces like infrastructure and IT. Would you say it is time to increase allocation to some of the bottom plays like Kotak Bank, HDFC Bank?
In banking, the focus is very clear. One should ignore and not really chase smallcap banks because most of these banks have got exposure towards MSMEs which is still a struggling segment. That is a place we would not really want to recommend much.

But on the tier-1, most of the private sector or the PSU banks like SBI have a clear focus towards the retail side, especially home loans, personal loans and credit cards. That is a segment which looks attractive – be it PSU or private. That is the only pocket one can look at.

If the capex cycle picks up, then I would want to believe that PSU banks could outperform the private sector peers but in general, both private and PSU banks, tier-1 banks are looking attractive and should be bought into the weakness.