ET Now: We have been debating about whether or not RBL is going to see a listing pop. What are your thoughts?
Deepak Shenoy : RBL is an interesting IPO from the 70x over subscription itself. You would be disappointed if there was not a listing pop. It cannot be that 15 days ago 70x more people wanted to buy into the IPO and on the listing date they are not. So there will be some kind of move up.
Overall, I think the banking space is seeing a lot of tension. Non-banking financials, home finance for instance is also seeing a lot of attention. However, I think the upside is a little limited. It is incongruent with overall banking credit growth right now which is at sub-10%, some the lowest in last 20 years.
We have seen RBI coming out with UPI where a lot of private banks have not taken the initiatives, a lot of public sector banks have. So there is a little bit of incongruency in banking right now and I think if anything RBL has to benefit, it has to be able to beat the other private banks and gathering float because I do not see the credit growth dramatically increasing that would give RBL the same market share but a tremendous growth. I would be wary. I think this is a momentum play and not really a long-term story right now.
ET Now: If RBL lists at a premium of Rs 40 on the IPO price, would you still be a buyer or would you avoid it?
Deepak Shenoy: I think if it were to list, take Rs 40 up that is probably another 2PE or their PE would be about 30 plus. So at best, I would buy it for a really short term play with a stop loss but I think at this rate, you want to buy a bank like an HDFC Bank or Yes Bank. They might actually be better buys if you are looking at the banking space, then RBL is a pure momentum story.
ET Now: We have been chatting about the strength in PSBs as well as cement. Have you been a buyer of late?
Deepak Shenoy: We were a buyer of some PSBs a long time back. We have actually sold them because at this point the valuations look a little rich to us considering the overall banking story in terms of credit growth and perhaps the fact that rates are not probably going to get cut any time soon.
Also, if you look at what RBI has done recently, it is literally telling the good corporates go to the bond market, do not go to banks. I mean that is the kind of fine print here. This is actually negative for banks because they are going to be best corporates today, even like Reliance Jio is able to raise short term funding at less than 8% a year.
Banks MCLRs are above 9%. So I do not see this opportunity as very good for public sector banks in the longer term. In cement, I particularly think there are lot of companies that are tremendously overvalued. This is not a great quarter for cement, it is the monsoon but I overall believe that the real estate situation and the fact that construction has kind of plateaued out in terms how much it can grow, I do not see this cement boom lasting very long. So at best momentum plays but I would not put a long term story on them right now.
ET Now: What you are telling your premium customers to do in a scenario like this? What stocks can people buy into?
Deepak Shenoy : I think the big theme right now that we are looking at is auto ancillaries and chemicals. A lot of chemical stocks have been added into our portfolios recently. From Tata Chemicals, we have had Sudarshan Chemicals for over a year now and a couple of other chemical stocks that have recently been added including Gujarat Alkalies. All these companies seem to be showing a tremendous amount of earnings growth.
The chemical sector in the IIP is also showing reasonable change in trend in terms of production volumes. We are already seeing these companies, they were at 12-15 PEs, now they are at 18 PEs and yet they are growing at 25-30%. Some of their ROEs have gone above 22-23%. So I think that is one space that we are really interested in.
Auto parts, auto ancillaries really is another space that is quite interesting because the company seem to be less valued substantially compared to what growth we are expecting from the auto majors. So these are the sectors that look interesting. Also, this monsoon and as much as it is normal, we are tracking it quite closely. I think a lot of the players in this monsoon setup even have a monsoon portfolio and that has gone up quite substantially, thanks to Escorts and a couple of other players.
This is the theme that we are looking at, not really interested in banks though the home finance companies excite us. They are not going down enough for us to be able to pick up story for the longer term but that is another space that is interesting