EVs apparently will be much more impacted. So, to that extent, companies which have bigger EV portfolio or greater reliance on EVs only or two-wheeler EV companies, etc, those might be impacted more if it does not get resolved over the next four to six months.
"I think most of the MFI-focused companies are trading at somewhat distressed valuations. And there were two comments, specifically, one that the RBI has clearly stated that they see easing stress on the unsecured loan book, so that is overall good for the financial sector, especially for NBFC and more specifically for MFIs," says Sandip Sabharwal, asksandipsabharwal.com.
Where you see the markets headed today, the kind of fillip that we have seen on the Nifty on Friday, do you believe that is sustainable today and the sectors that have been leading over the course of last week, do you believe they will continue to lead this week as well?
Sandip Sabharwal: Yes, I think so, because the RBI’s actions were quite significant. And in fact, many other sectors like auto would also have participated much more, because they are very strong beneficiaries of the easing equity and rate cut cycle, but for the rare magnets issue. Otherwise, the autos would have done much better than what they did on Friday.
And if that sector remains subdued due to concerns around these supplies and apparent shutdowns, etc, so at that time you could get opportunities to buy these stocks. Otherwise, what RBI has delivered combined with the kind of tax breaks which the government has given for the middle class this year, higher government spending, overall lower inflation, so it is a perfect combination for revival in economic growth and as that plays out, markets should also do well.
The one point that I wanted to discuss is that this big bazooka that they have given, I mean, not just the policy rate cut, but even for the MFI sector, because this is one space within financials which did have quite a fair bit of stress. Tell me, how does this help the MFI sector? And would you be an investor here at all?
Sandip Sabharwal: Yes, I think most of the MFI-focused companies are trading at somewhat distressed valuations. And there were two comments, specifically, one that the RBI has clearly stated that they see easing stress on the unsecured loan book, so that is overall good for the financial sector, especially for NBFC and more specifically for MFIs, although there would be some concerns related to some state government bringing out new laws, etc, where some specific company could get impacted, so that has to be more minutely analysed. But that comment combined with the fact that MFI lenders have the ability to diversify into other segments and still retain the MFI categorisation, I think that is a significant positive, because then risk can be maintained better in the balance sheet. So, overall, it is quite positive for the MFI sector, even for the gold lenders where the norms have been eased. So, something has been given to everyone.
If you can just highlight some of your top favourites within the financial space. Well, of course, it is not just the MFIs, the gold financers, it is actually great news for many of these stocks, but which are your top bets within the financial space?
Sandip Sabharwal: The larger bank can continue to do well, which include ICICI, HDFC, Axis, Kotak, etc. Some of the PSU banks could see a revival. So, because of the sheer underperformance, we have actually recently added into SBI also in our portfolios.
The other part which could benefit, obviously the NBFCs benefit much more in a significant easing cycle than the banks, so NBFCs people have a wide choice like Manappuram, L&T Finance, Mahindra Financial, Bajaj Finance, etc, among the NBFCs.
But then there are others also which could benefit. So, investors have a wide choice. But overall, for the NBFC sector, this what RBI has been doing over the last few months is a much more significant positive than banks per se because most large banks have 40-45% CASA deposits where the costing does not reduce so much immediately and it is more or less fixed, although most banks have cut rates by 25 basis points, but for NBFCs which tend to be bulk borrows, significant monetary easing is much more positive.
The realty pack, where is it that you find comfort to buy a fresh or add-in or even some of the HFCs, for instance, maybe that is a better play.
Sandip Sabharwal: I like diversified NBFCs better. So, I would focus on those because only focused housing finance companies will continue to face more and more margin pressures as the liquidity eases. So, it is better to be in the diversified space. On the real estate sector, obviously this benefits the real estate sector. But as of now, I am not finding comfort in buying into any of these real estate companies at these valuations because the run-ups in most in the near term has been very substantial be it the market leader something like DLF already valued from 600 odd to 850, 880 something, so the rallies over the last one or two months in most of the real estate counter has been so significant. It is tough to find value. But on correction, we could still evaluate.
Where both the companies will actually see what they can do best. But it is a big issue that is now emerging for the auto companies specifically with the shortage of critical rare earth magnets rather coming in from China. What is your sense that how severe this could actually impact the Indian auto industry and other sectors as well, given the fact we have a lot of reliability on China when it comes to select magnets?
Sandip Sabharwal: So, there is a lot of news to go on where the impacts could be. The direct impact is more on the auto side immediately but apparently be going to a electronics, etc. So, now it will depend on how fast. So, it is not a question of supply. The supply is there, the supply is not being given, so that is the issue.
So, whether it will get resolved or not, we do not know. Overnight there has been some news flow that China has approved supplies to some European and US customers. So, the point is, is India going to be singled out or is this issue going to be resolved? So, there are too many moving pieces. So, we need to watch out for that. EVs apparently will be much more impacted. So, to that extent, companies which have bigger EV portfolio or greater reliance on EVs only or two-wheeler EV companies, etc, those might be impacted more if it does not get resolved over the next four to six months.
Where you see the markets headed today, the kind of fillip that we have seen on the Nifty on Friday, do you believe that is sustainable today and the sectors that have been leading over the course of last week, do you believe they will continue to lead this week as well?
Sandip Sabharwal: Yes, I think so, because the RBI’s actions were quite significant. And in fact, many other sectors like auto would also have participated much more, because they are very strong beneficiaries of the easing equity and rate cut cycle, but for the rare magnets issue. Otherwise, the autos would have done much better than what they did on Friday.
And if that sector remains subdued due to concerns around these supplies and apparent shutdowns, etc, so at that time you could get opportunities to buy these stocks. Otherwise, what RBI has delivered combined with the kind of tax breaks which the government has given for the middle class this year, higher government spending, overall lower inflation, so it is a perfect combination for revival in economic growth and as that plays out, markets should also do well.
The one point that I wanted to discuss is that this big bazooka that they have given, I mean, not just the policy rate cut, but even for the MFI sector, because this is one space within financials which did have quite a fair bit of stress. Tell me, how does this help the MFI sector? And would you be an investor here at all?
Sandip Sabharwal: Yes, I think most of the MFI-focused companies are trading at somewhat distressed valuations. And there were two comments, specifically, one that the RBI has clearly stated that they see easing stress on the unsecured loan book, so that is overall good for the financial sector, especially for NBFC and more specifically for MFIs, although there would be some concerns related to some state government bringing out new laws, etc, where some specific company could get impacted, so that has to be more minutely analysed. But that comment combined with the fact that MFI lenders have the ability to diversify into other segments and still retain the MFI categorisation, I think that is a significant positive, because then risk can be maintained better in the balance sheet. So, overall, it is quite positive for the MFI sector, even for the gold lenders where the norms have been eased. So, something has been given to everyone.
If you can just highlight some of your top favourites within the financial space. Well, of course, it is not just the MFIs, the gold financers, it is actually great news for many of these stocks, but which are your top bets within the financial space?
Sandip Sabharwal: The larger bank can continue to do well, which include ICICI, HDFC, Axis, Kotak, etc. Some of the PSU banks could see a revival. So, because of the sheer underperformance, we have actually recently added into SBI also in our portfolios.
The other part which could benefit, obviously the NBFCs benefit much more in a significant easing cycle than the banks, so NBFCs people have a wide choice like Manappuram, L&T Finance, Mahindra Financial, Bajaj Finance, etc, among the NBFCs.
But then there are others also which could benefit. So, investors have a wide choice. But overall, for the NBFC sector, this what RBI has been doing over the last few months is a much more significant positive than banks per se because most large banks have 40-45% CASA deposits where the costing does not reduce so much immediately and it is more or less fixed, although most banks have cut rates by 25 basis points, but for NBFCs which tend to be bulk borrows, significant monetary easing is much more positive.
The realty pack, where is it that you find comfort to buy a fresh or add-in or even some of the HFCs, for instance, maybe that is a better play.
Sandip Sabharwal: I like diversified NBFCs better. So, I would focus on those because only focused housing finance companies will continue to face more and more margin pressures as the liquidity eases. So, it is better to be in the diversified space. On the real estate sector, obviously this benefits the real estate sector. But as of now, I am not finding comfort in buying into any of these real estate companies at these valuations because the run-ups in most in the near term has been very substantial be it the market leader something like DLF already valued from 600 odd to 850, 880 something, so the rallies over the last one or two months in most of the real estate counter has been so significant. It is tough to find value. But on correction, we could still evaluate.
Where both the companies will actually see what they can do best. But it is a big issue that is now emerging for the auto companies specifically with the shortage of critical rare earth magnets rather coming in from China. What is your sense that how severe this could actually impact the Indian auto industry and other sectors as well, given the fact we have a lot of reliability on China when it comes to select magnets?
Sandip Sabharwal: So, there is a lot of news to go on where the impacts could be. The direct impact is more on the auto side immediately but apparently be going to a electronics, etc. So, now it will depend on how fast. So, it is not a question of supply. The supply is there, the supply is not being given, so that is the issue.
So, whether it will get resolved or not, we do not know. Overnight there has been some news flow that China has approved supplies to some European and US customers. So, the point is, is India going to be singled out or is this issue going to be resolved? So, there are too many moving pieces. So, we need to watch out for that. EVs apparently will be much more impacted. So, to that extent, companies which have bigger EV portfolio or greater reliance on EVs only or two-wheeler EV companies, etc, those might be impacted more if it does not get resolved over the next four to six months.
