will eventually outperform Nifty Bank as well as other banks, says Dipan Mehta, Director, Elixir Equities. Edited excerpts from an interview:
HDFC Bank has been underperforming as compared with other banks. Do you think HDFC Bank is likely to catch up now?
The quarterly update from HDFC Bank was exceptional. They have done significantly better than their peers, be it PSU banks or private sector banks. Even in times like this, they have been able to gain market share. It is quite amazing. I think that this underperformance gap will narrow down over the next few quarters or so. It is a must-own stock in every portfolio. It remains a consistent performer. Once we have some solution to the technical tangle which they have got into, they should be able to start issuing credit cards and increase that particular book as well which has been quite profitable. I am very impressed with HDFC Bank’s numbers. It will eventually outperform Nifty Bank and its other constituents as well.
Is the price action in Tata Motors justified? The world knows about the shortage of semiconductors and companies are now saying the obvious.
The price action was definitely justified. We may see the stock correct further over the next few weeks as and when the monthly numbers and the June quarter results come. But for investors who want to play the revival of the global auto theme, Tata Motors offers a good option. If you have a one-and-a-half year view, the stock can regain a lot of the lost ground.
The most satisfying part is that they have a long waiting list of three to five months. The demand remains pretty much intact. Their models have been extremely well received. From the point of view of owning a high-class auto OEM company, Tata Motors checks all the boxes. It is just that they have to navigate a couple of quarters of disappointing numbers, but the medium to long term outlook remains quite decent. You can look at investing in the stock at corrections with a 1-2 year view.
How are you approaching the B group space? Are you taking some chips off the table?
I think the best gains over the next 2-3 years are going to be in small and midcap stocks. This is the best ever environment for them. There is going to be an overall improvement in the economy. Small and midcap companies now have reasonable strength in their balance sheets. They have certain specific competitive advantages also for which they have been able to compete against the larger players.
Our strategy is that whatever is the investment theme and whichever sector you like, the best way to play would be through the midcap segment. Just to give you an example, if you like cement do not go for UltraTech and Shree Cement. Go for cement companies like JK Cement, JK Lakshmi Cement or Birla Corp. If you want to play it slightly safer, then may be you can go for ACC or Ambuja Cements.
Similarly, smaller banks like Federal Bank and IDFC First Bank may give exceptional returns. As they recover lost ground and investors get more confidence in them, you may see these companies outperforming over the next 12 to 24 months. Depending upon the investment theme and which sectors you like, you may get better returns within the small and midcap space. The only exception is in the largecap IT companies, where midcap stocks are a little ahead of themselves. Maybe some catch-up trade would take place as far as Infosys and TCS is concerned.
So from the point of view of putting incremental cash into IT, our preference is Infosys, TCS, HCL Tech and Wipro. In the near-term, these stocks may do better than some midcap companies. We will start buying midcap IT stocks once they have cooled off a little bit.
What is your take on the new IPOs that are going to hit the market?
Although they are all great companies and the valuations may be justified, but looking at past bull markets and the frenzy in the primary market, I would like to get a bit cautious on the entire secondary as well as primary market. Let us just wait and watch. I just want to be a bit cautious and keep the powder dry for a correction, which could easily be 10-15%.
Are you keeping some cash under the pillow for Zomato IPO?
Well, I am in two minds at this point of time. It is a tough decision. There is no point investing a small amount. It is a large company and so it is important to decide whether you want a decent weightage in your portfolio or not. My sense is that maybe apply partially in the IPO and then look for additional acquisition over a period of time after listing.
I am sure that these companies will teach analysts a lot in terms of valuation, assessing the price and growth metrics.