Use dips to buy ICICI,Axis Bank: Anand Tandon

We are looking at an overpriced market which is struggling to find new highs but being pushed by a wall of money and that is why that is now spreading to the smaller and midcap parts of the market., says independent analyst Anand Tandon. On Bajaj Finance’s performanceIt has been a business which has performed way better than expected, given the environment it is operating in. Unsecured lending at this stage is probably the most risky business and despite that, the numbers have been kind of okay. So you have to give it to the management that they have managed to achieve whatever they have. But if one were to look at it from an investor perspective, the fact remains that it is still extremely expensive as a company and though they have justified that for a long time and the market continues to believe that it can sustain that kind of thing, you have to assume that the growth can be maintained at very high levels for you to be able to justify that number on a fundamental basis. That is a bit of a challenge in the environment we are in because for the next few months at least because of the Covid situation, we would again have an issue in terms of how the growth numbers should be panning out. Caveats on the valuations aside, it is a business that has proved time and again that it knows how to handle the risks and the business that it is into. On Bajaj AutoBajaj Auto is a much less complicated business but the numbers have been good. I frankly like Bajaj Auto because it is not dependent on India only and has a more diversified base. Though TVS has also reported very good numbers and has been rewarded accordingly, Bajaj Auto’s export numbers are the ones that I would look at more carefully because that is something that gives you a diversification beyond India. The valuation is kind of okay. The main problem was that the two-wheeler business was slowing down and that continues to remain a bit of a challenge. But I would argue that it is a little difficult to understand for the simple reason that personal mobility is one segment where one would expect numbers to improve if there is a pressure on margins. But the numbers are reasonable and the valuation is not that expensive compared to some of the other companies in the sector. I think the company can perform reasonably okay over the next few months. On Reliance Industries I do not have any other further insight in terms of the actual numbers. I think that is a job better done by the analysts but if you were to look at where the business valuation is driven from, it is largely driven from the consumer and the technology business and not so much the traditional gas and oil business. Of course, given the fact that there has been an increase in raw material prices on the oil side, one should be able to see a little bit better performance coming through even in the oil and gas business. Reliance had a tough time last year on the Jio front because of the farmer agitation in Punjab. That slowed down their numbers a bit. One is looking to see those numbers picking up again as we get out of that phase. But clearly the retail side of the business is not likely to do too well. One has to look at it more as a platform play that will work out over the next few years rather than immediately. In the near term, I would expect better performance from some of the older businesses and a little better compared to last quarter for new age business like Jio. Can Axis Bank & ICICI Bank be bought on dips?Well certainly. I have been bullish on the corporate facing banks for quite a while. ICICI Bank now is probably one of the cheaper private sector banks out there which has potential to grow quite rapidly from here and at least maintain a reasonable asset quality for the next several quarters and at the same time the valuation is not particularly expensive. Axis perhaps will need a little more time because it has already run up quite a bit though it has given up in recent weeks, But it is still expensive relative to what it has been earlier. Net-net, both these banks present good opportunities. I think the Indian banking system for all practical purposes has only four banks as far as the corporate sector is concerned -- HDFC, ICICI, Kotak and Axis. Everything else is too small or is going to have a tough time playing catch-up. From a corporate banking perspective, these are the best ways to play the sector. One can expect some amount of credit growth in the corporate side. We have not seen those numbers going up yet but the expectation is that is where the growth will happen and the consumer part is a bit overdone in my view. What is the market focussing on in the near term? After every three-four days, the market rally stalls and then again a push comes higher! If you look top down, this answer is simple. There is no upside from here because the valuations are extremely high whether you look at the Indian market or the US market. We take our cues from valuation upside to come from here. Now that said, there are a lot of problems in the US in the form of taxation possibilities and though the market seems to have shrugged that off as a non-event, that is because they have not passed the laws yet. If they were to pass the higher taxes, there would probably be a huge readjustment there and that will affect all markets around the globe. But otherwise, the assumption is that because of money coming out from the developed market, the emerging markets will benefit. Inflation is likely to go up in markets like ours where the weightage in the index is almost 60% for commodity related stocks which will obviously do well. Net-net, we are looking at an overpriced market which is struggling to find new highs but being pushed by a wall of money and that is why that is now spreading to the smaller and midcap parts of the market. The strategy that everybody is trying to follow is find smaller companies which have reason to go up because they have underperformed for several years. However, in the last few months, midcaps may actually have significantly outperformed but they have not yet reached the kind of peaks that we have seen in the past. So there is perhaps a little more upside. The large cap index will largely remain range-bound assuming there is no adverse event and that will give an opportunity for midcaps and small caps to play a catchup for some more time, especially driven by inflationary pressure. With all commodity prices going up, whether they are metals or soft commodities in the form of chemicals and petrochemicals, that is a trend that is likely to continue for at least another quarter or two.

from Economic Times https://ift.tt/3e2PNA0