What is your observation of the trend in September sales by auto majors?
One thing which was clear was that most of the auto companies were talking about very good numbers coming into the festive season. In fact, one was quite surprised to see the tractor sales growth of M&M relative to Escorts numbers. M&M could prove to be the dark horse. The IT sector is also doing well and so there is a lot of value coming from the subsidiary side as well.
In the two-wheeler side, companies like Bajaj Auto should do well going forward considering how the sales have ramped up and we have seen a 2% price hike at the end of the month by most of the two-wheeler companies. Demand is in top gear and we can expect a lot of the auto ancillaries to do pretty well going forward. They were struggling a lot because the tier II manufacturers are going through very bad time in terms of supply chains. As that gets sorted, the sector will continue to do pretty well and we also see that the financing side will improve going forward. The government announcement helping the small borrowers indirectly helps the auto sector as well. We are pretty bullish on the sector and so numbers will continue to do pretty good going forward for the sector.
What about the IT basket? How are you approaching TCS in particular with respect to earnings and that share buyback which is going to come out later this week?
Things are going to be pretty decent for the company. The size of the buyback could be significantly higher than what it has been earlier because of the deal which Tata Group is trying to do with the Shapoorji Pallonji Group in terms of them exiting Tata Sons. Other investors can also benefit from this buyback. They will look at selling a part of their stake over a period of time and that would help Tatas in terms of increasing their free float. If they do a buyback and do not participate, then the free float might reduce and that could have a negative impact.
Going back to the business side, things are pretty robust for the company relative to what they were one or two quarters back because we saw that Infosys was doing better after a long time with regard to numbers in terms of volume growth as well. Now it is the right time for TCS to improve in terms of margins going forward in the coming next two quarters and for that particular reason, we are quite bullish on the stock going forward.
Which is the best auto stock to buy according to you? Which is the auto stock you would buy for the next six months and for the next three years?
From the next six months perspective, then something like Bajaj Auto could be an interesting stock to buy. The reason for that is on the export side, there is a clear bump up going forward. Secondly, they are coming up with some new products in the segment in which Hero is quite strong and they seem to be talking about being able to crack it this time. Remember, they have lost market share over a period of time to Hero because they just keep on coming back to that segment. I feel that in addition to Hero, Ashok Leyland could be a big dark horse for the next three years’ perspective.
Currently, the commercial vehicle segment is going through a bad time. The road numbers in terms of non-credit growth, the numbers for the metal sectors and the Coal India production numbers suggest that going forward, a lot of basic industry sectors related to mining could do pretty well over a period of time. When that recovery happens, we are going to see a very sharp movement in volumes. Though the inventory levels are now high right now, Ashok Leyland could see a 50% kind of upside from current levels going forward and that is the one stock I would recommend to look at from a three year’s perspective.
Every time we think HDFC Bank is expensive the stock just keeps on going higher and higher. Is one better off not over analysing and just buying HDFC Bank or Bajaj Finance?
It depends on your perspective of how much timeframe you are looking at in terms of investing. If your timeframe for investing is a period of one to one-and-a-half years, then ICICI Bank could be a better bet considering that the valuation gap is pretty high and now the bank seems to be doing pretty well. They are no longer very aggressive and are not getting into reckless lending. Things have really changed in terms of how ICICI Bank is doing.
HDFC Bank is a compounding story and every six months, this is a new HDFC Bank, again it never turns out that way. But obviously, the valuation being high, all depends on the price point and if you have a 4-5-year view, then from a compounding perspective, you will make money in HDFC Bank. But if you have a shorter term mindset, then you can look at ICICI Bank over an HDFC Bank. From the next one to one-and-a-half year perspective, my number one pick would be ICICI Bank.