Just when everyone thought that banks are due for a comeback, you had poor set of numbers from HDFC Bank and now SBI over the weekend numbers were not impressive enough. Looks like there is a bit of a concern if top banks are struggling.
Largecap results in general have been below par except for few sectors like pharma, auto which have stood out. IT sector results were okay, nothing very great, so that is the big issue with the markets that on the large capside there are very few companies which can drive the index further higher. So, there has been a significant up move in Reliance which has contributed to the recent upsurge. Except that, many of the banking sectors names like you said have been underperforming and the probability that the NIMs and the net interest income would keep on rising for the next two quarters is also a realistic possibility.
And for many of the banks, the big boost to earnings which came out of improvement in asset quality given that most large banks including SBI now have net NPAs at 0.5-0.6% or lower, from next year that benefit also will not be there to add to the earnings.
So, next year, it has to be core earnings. Core earnings outlook in the near term looks a bit challenging.
So, what could be the downsides for SBI?
I think most analysts I was very surprised have actually upgraded prices after results. So, I do not know what they are reading into the results. But that said, I think there is a fancy for PSUs right now, so I would think that downside could be limited unless the overall market sells so maybe downside could be 4-5%, but the stock should go through a phase of consolidation before it can move higher. What is the outlook then when it comes to a Paytm? Although the company is completely denying a lot of those ED charges, it still seems like until we actually get more clarity, the pain is going to continue. Is that your sense?
Whether the pain will continue or the stock will bounce back is very tough to predict. But the fact of the matter is that business has got severely disrupted and what will be the endgame in terms of how the company structure will look at, what will be the contributors to earnings for Paytm longer term and how many customers they will be able to retain, all of them have gone into an uncertain zone. So, that is why it is very tough to make a prediction on the likely value of the stock price, so maybe some people who buy now might actually end up making good money or maybe who is buying now might actually lose half their money, it is impossible to predict at this stage. The other stock which is worth revisiting is Tata Motors. They are firing full cylinders. Do you think it is easy to imagine that soon it could be Rs 1000, whether it is this month, next month or end of the year that is anyone’s guess. But the next 10% move in Tata Motors should be up rather than down?
Yes, it should be because as I read through most of the analyst notes, post the earnings commentary, etc, I think their earnings projections are still much lower than what the company can actually deliver. So, they have been doing well. I think they should continue to do well. Like next year, there could be some moderation in JLR growth because of the economic situation in US, Europe, and China, etc, that is fine, that is something which is built in. The major improvements are in profitability, debt reduction, etc, which will continue and I think they could possibly repay their entire debt in one year if this kind of cash flows continue.
So, I think it is a good story. It is still not a very owned stock if you look at institutional investors. So, I would think that there will be new buyers on every dip. There is no reason for anyone to sell this stock.
What are you making of this entire energy revival that we saw play out last week, led of course by Reliance. I mean, it is not a pure play energy company at all. But even the OMCs, even ONGC for that matter.
Yes, so OMCs, obviously because of the fact that there are no fuel price cuts happening and crude prices are subdued, so they are making significant money every day and I think that is feeding into the outperformance. The risk remains that pre-election there could be a sharp fuel cut and then that negates a lot of these benefits. So, at these prices, the risk reward is not really favourable. In my view, ONGC is a very inefficient company. I think their production has been declining for years. It will continue to decline and it is part of the re-rating of PSUs, the entire PSU re-rating basket, but I do not see any story in ONGC at all.
Just give us a sense as to how you are looking at the entire PSU rush. Do you believe that there is still a lot of opportunity within the entire PSU space?
PSU space is very huge. Retail investors, HNI investors, everyone is just buying PSU stocks right now. So, people need to be careful what they are buying. Select railway stocks on corrections or defence stocks on correction there could still be opportunities.
Have to ask you about UPL, it is flagging again, a weak quarter for the fourth quarter as well coming forward you think though when it comes to the stock price the worst could be behind because most of these chemical names have, as it is, languished all through the year.
The big problem with UPL unlike many of the other companies which we can compare it with is the huge debt burden. Like the debt is so huge that if things remain bad for a couple of quarters, then that leverage itself can be very-very disruptive for the company and if there is a credit rating downgrade on top of that then that could add to the worries.
So, although at a price level on predicted earning UPL could be looking cheaper, but then the debt level I think with stand at around Rs 35,000 crores if I am not wrong, I think that is a big concern at this stage. So, we need to wait for significant change in profitability before we can invest in this stock.
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