Where do you stand when it comes to the private baking names because this has been a sector that has been a consistent performer? Where within this space do you see opportunity?
There are significant and interesting opportunities in the largecap private sector and PSU banking space. Among PSU Banks, I would definitely go for SBI. What has happened at SBI needs to be acknowledged. A whole lot of SBI subsidiaries have been performing exceedingly well and the bank in a phased and structured manner is extracting value from these subsidiaries either through listing or through strategic divestment. This value accretion will continue for some time. The asset quality at the bank has also improved significantly. Even the moratorium numbers are improving on a continuous basis. The bank deposit base is also increasing; it already had a huge deposit base, on top of that, the low cost deposits are increasing because of the general risk aversion on smaller banks as far as retail deposits are concerned. Accumulation of all these factors and the attractive valuation make SBI a definite buy. There have been foreign brokerage upgrades as well but Rs 300-plus target is a very reasonable target for SBI.
The second bank I’d like to talk about is the ICICI Bank. This bank too is performing very well and has well-managed subsidiaries; the bank is extracting value from them in a strategic and phased manner. The asset quality is definitely improving on a quarter-on-quarter basis, the moratorium book is almost halved between the March quarter and June quarter and the deposit base is increasing. Overall, we are positive on ICICI Bank and at current levels, it can definitely be looked at.
What about two-wheelers, do you sense that this GST move is going to be a big game changer?
We have been bullish on two-wheelers for some time now; the rural demand increase is here to stay. The government’s multiple schemes have pushed a lot of money in rural India. The agriculture and monsoon are doing good and that definitely improves the rural economy. The demand for personalised transport will remain for quite some time at accentuated levels. All this helps two-wheeler manufacturers. So, Hero MotoCorp, Bajaj Auto and even TVS need to be looked at. You may not get an overnight flip or a significant upside but if you are a six months plus-hold-type of an investor, all these are great investments. This GST cut may or may not happen in the short term but there is a strong logic for rate reduction. Two-wheeler definitely is not a sin industry and it should not be taxed at 28%.
Is it a little alarming that these microcaps are buzzing the way they are because typically this happens at the fag end of a bull cycle?
Investors need to be a little cautious and I do not want to comment on any of the stocks other than McLeod Russel. That stock is a little tragic. Its core business — which is tea — is doing fantastically well. The tea is at a significantly higher level from where it was a few months back. The auction prices are continuously going up and there is significant incremental demand. So, the tea business per se is doing fantastic. Unfortunately, the huge amount of debt which the company has accumulated is leading to all kinds of problems and the market is banking on a white knight kind of a scenario where someone will step in and save the fundamental and core business of the company. If that happens, it is a great company to look into and invest but at this stage, investors need to be extremely careful.
Going ahead, are there any specific stocks or sectors that are on your radar?
I have been bullish on the rural and agri theme for some time, and I believe there are still opportunities there. A seed company like a Kaveri Seeds looks good, a fertiliser company like Coromandel International does look good based on the plentiful rainfall and valuations. I talked about the two-wheeler companies, and beyond that, the consumer durable companies which have got a strong rural distribution network like Bajaj Electrical or V-Guard or even Voltas can be good bets. This theme is going to do well for the next six to 12 months, and investors can get into these stocks even at current levels.
What are you expecting when it comes to the contours of the Reliance Retail-Future deal?
It is a very interesting deal and with this Reliance Retail will end up controlling about one-third of the organised retail in India. It will be a very appropriated addition to Reliance Retail’s kitty. The kind of businesses which they will acquire will fit in perfectly with Reliance Retail. To get a quality, established business like Future Retail’s multiple segments will be good for Reliance Retail, and it will be attractive from the point of view of investors who would be coming into Reliance Retail.