Speaking to ET Now, Abhimanyu Sofat, head of research, IIFL, says it would be interesting to see how private sector banks report their numbers.
Edited excerpts:
ET Now: Some solid earnings coming in from Bajaj Finserv as well as Bajaj Finance, do you sense that this flight to quality has been backed by a solid growth?
Abhimanyu Sofat: Yes, absolutely. I think, you can see the divergence in terms of stock performance of Bajaj Finance relative to Kotak Mahindra. We have seen in the case of Kotak that despite a decent loan growth of around 22 per cent, because the deposit growth was just 16 per cent, we saw an impact in margins. In the case of Bajaj Finance, with a new Indian accounting standard, you are likely to see a significant uptick despite the 5 per cent reduction in net worth, which happened in last year's numbers because of this change in accounting.
Going forward, I think, with a lower cost of funds for the company as well as benefits, because of transferring of business to the housing finance subsidiary, I think going forward numbers are likely to be robust for Bajaj Finance. Similarly, if you look at other sectors as well, like in the case of IT, one is clearly seeing the numbers and guidance are good. Market is likely to give a premium over other stocks.
ET Now: What caused this disappointment for Bajaj Auto and should this decline be bought?
Abhimanyu Sofat: Honestly, before the result we were a bit bearish on Bajaj Auto and the reason for that was that in the month of March they had reduced the pricing of CT 100 bike by close to around Rs 2,000 per bike.
Now, the margins are hardly there in this bike, because it is a lower end bike and because of Bajaj's policy of gaining market share, we saw a 50 per cent bump up in the sales of this bike. The estimates with what market was working with, around 19.5 per cent, were clearly higher than what we felt was likely to happen. So, I am not at all in the camp which feels that numbers are lesser than expectation. From my standpoint, this is the real margins which Bajaj should be hitting now going forward, considering its focus on gaining market share rather than protecting its margins.
ET Now: HDFC Bank, steady as always, no surprises, always the compounder and the best story amongst private banks?
Abhimanyu Sofat: Yes, sure. HDFC is one stock which is quite consistent relative to others. I think that would be the expectation going forward as well. So, let us see if there are certain challenges like what Kotak faced in the numbers, but my guess would be that HDFC should be quite consistent.
ET Now: What is it that you are going to watch out for, YES Bank, L&T, ITC, Hero MotorCorp, Maruti, it is a long list of numbers there?
Abhimanyu Sofat: If you look at this list for the next week, YES Bank is clearly one of the stocks that one needs to watch out for. The earnings growth momentum is strong and though there have been some quarters where there has been some disappointment in terms of provisioning and all, considering the growth traction and with the PSU banks giving more space to the private sector banks, I think this is one stock where one can clearly look at delivering a good set of numbers.
In case of Maruti, I think the numbers are likely to be decent. They are going to benefit a bit in terms of a lower base relative to last year, and because of premiumisation, numbers are likely to be better. Though there could be slight impact on the margins as we are seeing it happening in Bajaj.
Regarding Hero, I think it is a better pick for us relative to Bajaj Auto. I think after Friday's crash in the price of Bajaj Auto, the valuations are somewhere close to around 16x for both. Earlier Bajaj was trading at a premium. Since the rural economy continues to do well, in this kind of election environment, we clearly believe that Hero could be one stock which provides a decent risk reward at current market levels.
ET Now: One key trend that you would look out for the next week?
Abhimanyu Sofat: The interesting thing going forward would be how these remaining private sector banks report their numbers as I think there is a pressure because of the bond yield going up. However, we are seeing a lot of market opportunity happening in terms of tightness in growth, thus leading to market share gains for the private sector banks.
So, if we continue to see an improvement in those numbers, it is likely that the next leg of move from the index could happen from these. In addition to what HDFC and all are doing, especially these mid-tier banks, we would be keenly watching even ICICI Bank, because we believe that a large part of the problem that are there are likely to get sorted over the next couple of quarters.
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