Pandey further says that in auto, Ola’s future hinges on its cell technology. M&M excels across segments, while Tata Motors gains favour due to its JLR business valuation. Eicher Motors is favored in the two-wheeler segment, focusing on volume growth. Despite income tax benefits, broad sales increases haven’t materialized, necessitating selective positivity in the auto sector. On the two-wheeler side, they like Eicher Motor.
HDB Financial Services is the first subsidiary of HDFC Bank which is going public. Up until now, HDFC Ltd and HDFC Insurance had gone public, AMC went public and those were part of HDFC Limited. Now, HDFC Bank subsidiary is going public.
Pankaj Pandey: For us, the HDB Financial IPO does not move much of a needle for HDFC Bank. It might add about 2% to their book and about 4% of the overall price. Beyond that, we do not see much of a scope. In general, banking lacks trigger in the near term because a rate cut is around the corner and obviously, it will pressurise margin for most of the banks and which is why probably some of these banks are sort of yet not performing.
Although the PSU banks look slightly better given that their EBR linked portfolio is relatively lesser compared to private banks, in general not negative on banks but near-term triggers for banks to do well are missing. They have already done the heavy lifting up till now.
What are you telling your clients now after the recent runup? The sale in May and going away did not work this time. Should one sell and go away in June?
Pankaj Pandey: Actually, we have seen a rally of about 15 odd percent from the lows and we have seen a decline of about 3 odd percent. So, from that perspective, markets are pretty strong. Also, while on the earning side, we have seen a cut of about 6 odd percent for FY27, we are still holding on to our target price of Rs 27,000 on the Nifty, largely because we expect a relative positive arbitrage coming from the US-India trade.
So, from that perspective, we are still holding to the bullish bias. A lot will depend on how things pan out and the overall sense is that once we are done with that, the second half is where we would expect things to become a lot better. Like I said, first half banking might witness pressure on the NIMs, second half is where we could expect the recovery which is where the depository pricing can happen.
So, overall, the sense is that markets are looking good to us. Domestic liquidity also is good for us. Mutual funds are sitting on about Rs 1.50 lakh crore equity which would prevent a downside in the market. From that perspective, we are largely set to do well, but near-term, some consolidation can’t be ruled out.
What are you making of Yes Bank? Now, there is board approval for a sizable Rs 7,500-crore fundraise.
Pankaj Pandey: We are not tracking Yes Bank so much, but even within the tier II private banks, whether it is IDFC First Bank or some of the other banks, we are still cautious on whoever has got exposure to microfinance. Probably there will be one or two more quarters of pain and that is when we expect things to look up.
The block deals are abundant now whether it is promoter based or PE based. Do you think irrespective of the FIIs buying or DIIs consistent SIP flow, the liquidity will get neutralised because of fundraising?
Pankaj Pandey: So, yes, it is possible to some extent because when you look at it, even the IPO market is looking set to be revived. Obviously some kind of liquidity will get consumed there and even with block deals, one needs to see specific cases. For example, in the case of ITC, it is very much possible that the weightage for them might go up and this is one of the stocks we continue to like within the FMCG pack, trading at about 22 times on a forward basis. So, it is very case specific, but I really do not see a lot of these block deals being negative. From that perspective, things are looking okay to us.
Again there has been a dismal set of earnings coming in and after the block deal, we are seeing that Hyundai and Kia Motors which have been holding around 2.5% stake have taken a complete exit in this counter. The stock is trading below that 50 odd mark as well. What is your take, any hopes because a lot of retails have participated post the IPO as well.
Pankaj Pandey: We do not track Ola, The only hope for Ola would be the technology they carry, especially related to cells. As and when they start putting that into use, probably there might be hope. But within overall auto, one needs to be very selective because when you look at the recent auto numbers, you have only selected a few companies doing better in terms of volume.The key beneficiary or key player is M&M which is doing well in most of these segments. We have started to like Tata Motors largely because while global uncertainties are definitely there and are likely to persist for some period of time, valuation-wise we draw a decent amount of comfort because international JLR business is at about two times EV by EBITDA. So, from that perspective, there are some select positives.
Similarly on the two-wheeler side, we are liking Eicher Motors. They would be pushing for volume growth at the expense of margins, but it is a decent premiumisation play. In general, the benefit of higher sales is still not coming in because there was anticipation that post income tax benefits, numbers might start looking up. But that is yet to happen and that is why one needs to be selectively positive in autos.
Any upgrades after the earning season?
Pankaj Pandey: We have started to like a lot of stocks. For example, VA Tech Wabag looks interesting to us. This is one of the few companies in the water space. ELGi Equipment, again, is one of the few companies we like. We feel that with their product launches, domestically they will be able to overcome the Chinese competition.
In addition to that, some of the cement companies like JK Lakshmi look good to us. In the last few years, they have grown at 4%. Now, our sense is that with capacity expansion they could be growing at about 8 odd percent. Lumax Auto is another company which we like. While the stock has run up, post correction, this is one of the few auto ancillary companies which is guiding for a 20% CAGR growth until 2031 and that looks good to us.
HEG is another company which we like because somewhere down the line, a lot of these global companies or peers are witnessing challenges and either someone will go out of the business or the price for graphite electrodes can go up. HEG is relatively a lot better placed. These are some of the ideas we are liking.
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