investment strategy: NBFCs and Private Banks set to outperform, stay invested: Rahul Shah

What is it that your strategy is in this market? Time to buy yet?
Rahul Shah: What we have seen in last five-six months after a steep correction, because stock-wise there is a lot of correction other than the indices. So, after three good years, market is showing some kind of cool-off or maybe a base which is getting created before it takes off.

So, my sense is now what we saw in last couple of years was broader base rally in which everything was moving on. So, now what we believe is it will be a stock picking which will come into the front seat and a lot of stocks will do well from here and with this correction we have seen a lot of stocks come back to a very good reasonable valuation.

So, my sense, again, one, sectors what do we like is financials, that sector has done quite well. So, we will come back and a lot of stocks looks attractive from the current levels and the broader base if we look at the data, data has been improving, so just to give you a perspective, Q2 versus Q3, Q3 was better, now I think Q4 would be better what we are expecting and things have cooled off.

If you look at the biggest gainer, the crude prices which has cooled off and inflation below sub-4, RBI’s interventions what we have seen, so all these things are just getting a base for our markets to move up and as I said, it will be a stock pickers and the stock specific rather than the entire market selling into it.

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Do you think there is merit in this IT versus bank trade, money is moving out of IT into banks?
Rahul Shah: I agree that money has been moving out from IT into banks and what we saw also in three-four quarters, exactly four quarters where we saw the IT stocks performing and last year at the same time we saw that IT stocks moving up and same thing what we have seen is now we have seen the correction in the IT stocks and the money is moving into the financials.

And a lot of largecap IT names we have seen a muted growth and maybe nothing much in last two-three quarters. So, I think that correction which was due in the largecap IT names, which is happening. So, largecap will still underperform in IT names versus the midcaps for some time.

Wondering whether you think now, especially after RBI’s notification on IndusInd Bank stating that the bank is well capitalised and that financials remain satisfactory, you think the selling could get undone or would you still say that it is an avoid right now?
Rahul Shah: It is more about a sentiment. I believe that selling could get stopped or maybe at sometimes delayed, maybe people will wait for a Q4 number which is around the clock, in another next 15 days you will see a quarterly updates and post that the numbers maybe a week later or ten days more. So, agreed that the stock could become a sideways from here till the time the numbers come.

Now, it is very clear that for IndusInd Bank, there is no need to panic if you have a deposit. Now deposit is their lifeline, which is that if you have deposits, there would be no run on the bank and the bank remains solvent. The return ratios which RBI monitors, they are also looking encouraging. So, if the bank is going to be in business, is it a stock where you would say that I would look beyond the recent turbulence, I will take a two-year view and say I would buy it?
Rahul Shah: So, what has happened is whenever such things have happened, the stocks have become sideways for some time. We have seen such kind of setups earlier also. So, there is no worries about that deposit. Depositors definitely have no worries to worry about it that the bank sits on the run or something, very well capitalised, so it is just the stock prices correction does not mean there is a run on the bank.

And we have seen by and large a couple of times that stocks correcting it and underperforming it. So, I feel that if you have a horizon for two-three years, so then one should look at it. But worse is that you have a lot of other options right now in the markets. So, I would rather wait for a quarter, how the management’s at this quarter numbers and then I would take a call on the bank.

One trade for me could be that start buying crude derivatives, I mean, we think that okay, when crude goes down, buy paint companies, but what about buying aviation stocks, what about start buying Pidilite, what about start buying HPCL, BPCL, I mean, these are some of the biggest beneficiaries when it comes to decline in crude.
Rahul Shah: I agree with you. Whenever there is a sell-off, we see all this in terms of the crude prices cooling off, all this stock starts moving in the momentum. But we cannot go wrong in terms of the OMCs, the kind of valuation which they are trading right now.

Stocks like say paints and Asian Paints, which is down 30-33% in last 12 months if you look at it, the valuation looks interesting at this point of time.

So, if somebody wants just a quick trade, then yes, IndiGo for aviation, HP, BP, and an Asian Paints, all these three-four makes good sense to trade in some parts, maybe for a quarter or so.

Well, change of management, let us see what happens. You have to also remember that while the city may be excited about it, my limited point is simple that this is a regulated business, it is not a FMCG company or a bank or it is not an IT company where if there is a talent which comes from private sector, he can change the business. I mean, if you are running a bank, you can change the risk profile. If you are running a consumer company, you can change the brand. If you are running an IT company, you can change your customer base and technology. HPCL is ultimately a regulated company or regulated sector. Oil prices are not going to be decided by an individual, it will be decided by a formula. Expansion would be a function of what the board decides. And C) the GRMs are a function of what the global trend is. So, I do not know, I mean, if markets react on this news, it is an exit rather than a chase. What is your sense? You can disagree with me, it is okay.
Rahul Shah: No, two-three things on this perspective. One is obviously, what you mentioned is absolutely right, that is why the stock trades at such cheap valuations if you look at it. It is not just a month or so, but for quite some time stock has been trading at this level.

The only two-three triggers what I believe is that the compensation package which government has announced and if it comes in this quarter, so then that will add around I think Rs 25-26 into the book value and rest, obviously, we know that crude is down and it is trading at lower valuations and the expansion, so on and on. So, just for a trading, as I mentioned, for a quarter or so if somebody wants to play contra on the crude, then this stock one should look at.

But sectorally would you say, again, as consensus goes, stay long banks?
Rahul Shah: I agree. Consensus is that stay long on banks and select NBFC and those stocks have been showing good kind of strength. For example, private sector banks, the large private sector banks has been leading the rally. HDFC, ICICI, Kotak, all of the three of them are leading the rally. And NBFC space, consumer finance like Bajaj Finance are leading and are just trading towards a 52-week high. So, NBFC, again, should be a good trade, Bajaj Finance and then followed by Chola. So, all top five large names which I mentioned one should look at buying them.