These smaller banks and NBFCs show promise

People ought to focus on the larger infrastructure companies where the overall earnings visibility and quality is better than the smaller ones, says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL. On Nestle numbersThe overall trend of the consumer companies has been that on the volume growth front, things are pretty much okay but there are some margin pressures. The important takeaway from Nestle was that the online sales have grown very rapidly. Nestle and some of the consumer companies are low growth on volume front but are more of a structural story. I do not think the market is going to get perturbed by some disappointment on the margin. This remains a little stable high quality blue chip company which investors prefer for the kind of growth that it gives over a period of time. There are no major disappointments and the stock may remain a bit subdued. Overall, we continue to have a neutral rating on the stock. On Airtel board meet & strategic plans including listing digital co after 2-3 yearsBharti has been our preferred pick for a while. It had its own ups and downs in the last six-eight months. What we like about Bharti is their ability to post a very strong EBITDA growth despite there being no ARPU increase or the price increase per se. That is one important variable that everyone is looking out for. Other than that, the plans to sell off some of the assets in Africa and list some of the non-core assets and managing the balance sheet part has been pretty much okay. The only thing we are concerned about Bharti is that the recent quarter’s numbers compared to the earlier guidance that the management had given in terms of debt reduction had seen almost Rs 2,500-3,000-crore debt spike. The market may not like that but overall, as a story we continue to prefer this one. Reliance Retail vs D-Mart & other listed cosThe Tatas have a lot of synergies in the online part of the business. As for D-Mart, we don’t know how the online part will play out and how much penetration they are able to achieve out of the online part. At this point of time, the market has a liking for anything related to digital. We are seeing much excitement in stocks like IndiaMart, Info Edge and a whole host of companies. This kind of a deal at such a good valuation will revive some confidence or sentiment booster for some of the existing pure digital plays. On Tatas going head on with Reliance in the grocery ecommerce market Tatas already had a very strong presence across multiple formats — be it Tata Consumer related new products which they have added or their Stars Supermarket or Trent and other multiple formats that they have. They really needed a very strong digital platform which can add value to the existing ecosystem and they have built it. I definitely think that it would be accretive for the Tata companies per se. As far as Reliance is concerned, the entire ecosystem around that digital plan is at a very early stage. So except for some of the retail formats, the entire thing is being built and it would take some time for them to show any meaningful traction. I do not think this could be bad news for them as it all depends on how they are implementing their retail plans and what kind of traction one is able to build. On financialsThe momentum is very strong in the BFSI space and apart from the quality names, people prefer those which have already done good work in the last six, eight months. People are looking out for the smaller banks or the NBFCs where we are seeing a little larger momentum both in terms of price action as well as quarterly performances. Within that, we like AU Small Finance Bank. Among NBFCs, Shriram Transport Finance, Chola and Muthoot Finance have shown earnings revival. It is a high beta play and the overall performance over the next couple of quarters would be much better compared to the main ones in that particular space. The NBFC space has made a comeback. Give me 2-3 names where you are telling your clients it’s enough, take some chips off the table?When you are in a bull market, it is a very difficult thing to say ‘it’s enough’ because you do not know for how long the journey will pan out. Now that the capex revival theme is on the anvil, people may feel tempted to go for those midcap names in infra and many other companies where you may not really be able to see any great sustainability or earnings growth. We would want people to focus on the larger companies where the overall earnings visibility and quality is better than getting carried away with those smaller companies in the infra space which typically in a bull market would give you a lot of promises and hopes, but won’t deliver at the end of the day. That is the area where we would really like to be a little cautious. Otherwise, we should not worry too much about this momentum and the valuation numbers. We have a long way to go and if you are in the right names, it makes more sense to be with them as long as we have this growth story in place. On old private sector banks like Karur Vysya, Federal Bank, City Union Bank and Karnataka BankGiven that 3-4 names have come up in the government shortlist for privatisation, there might be some interest in some of the names like Karur Vysya, South Indian Bank and City Union Bank. But we must remember that except for a couple of names like Federal Bank and to some extent Karur Vysya, some of the banks had a major legacy etc but they are not showing any meaningful performance. Some buying interest may pop up because of some news but I would definitely like to stay a bit selective. We like Federal Bank and AU Finance because of the management quality and the growth they are delivering. It would not be sensible to expand that list beyond those two, three names.
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