In an interview to CNBC-TV18's Latha Venkatesh, Sonia Shenoy and Anuj Singhal, Mayuresh Joshi of Angel Broking shared his reading and outlook on the market and also gave recommendations on various stocks.
Below is the verbatim transcript of Mayuresh Joshi's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Sonia: How would you read this newsflow, would you construe it as positive considering that Tata Consultancy Services (TCS) is giving money back to shareholders or do you think that it could be a long-term negative because they could have utilised this cash better in an environment like this?
A: It is a classical argument of how to deploy the cash on balance sheet. So TCS in excess of 43,000 crore, Infosys in excess of Rs 35,000 crore, HCL Tech has done its fair bit of acquisitions and mergers over the past, so has Wipro. So I think to that extent, Infosys and TCS the expectations were always high whether they will have an increased dividend payout or whether they will buy back the shares to enhance the shareholder value or they go to that inorganic growth, do further acquisitions, which can be value accretive going forward.
However, in TCS’ case specifically, I do not construe this to be negative for the stock per se. Clearly with the kind of cash balance that they have got and the kind of volume growth that we are seeing picking up specifically in businesses like digital, which has picked up 30 percent year-on-year, BFSI has shown signs of bottoming out specifically on the Diligenta end and then largely the volatility in Latin America and India should bottom out in a quarter or two.
The headwin for the IT sector generally with H1-B visa, with utilisation levels still not improving is probably there but the attrition levels have come down significantly for top-tier stocks.
TCS’ attrition levels were at 11.3 percent, Infosys has managed to get it down to 15 percent. So largely it is a story on how the transformation on the digital front is taking place. The companies are cognisant of a fact of lower level hiring in lieu of H1-B visa rules as well.
So the stickiness in terms of numbers can continue for a quarter or two to three quarters but largely over a two year view, stocks are extremely attractively priced at this point of time.
So in my opinion again a staggered way of buying a basket of largecap IT stocks is the way I look at it taking into view that if H1 visa does come, it will reduce all the volatility and impact cost in buying this stock over a period of time.
Sonia: You have been bearish on the telecom space for a while but what is your view now. Do you expect more downsides?
A: If you go by numbers, the numbers are not encouraging in terms of other financial performance has been, voice average revenue per user (ARPU) are on the downtrend and as Mr. Ambani was speaking, data is going to be the focal point for telecom companies going forward but even on that front if you look at the data realisations per megabyte, they are falling down quarter after quarter, so you can see the competition intensity playing out in these stocks in terms of core realisations panning out and that is not getting offset by data volumes. However, with entry of a player like Jio, the additional pressure in terms of pricing would continue.
So the news surrounding merger, consolidation that you are hearing within the industry itself, if one goes by the number -- that should be some sort of a solace for the industry but largely I do not expect numbers to improve per se for these players at least for the next two-three quarters and the typical factors which are plaguing their earnings growth and cash flow momentum is the kind of leverage on their books and with no pricing coming through at least in terms of pricing power. Therefore, my sense is that the performance in terms of financial numbers might very well continue for telecom players.
Latha: Are you doing anything with the banks, State Bank of India (SBI) for instance as the merger gets closer?
A: Largely I have been positive on SBI for a period of time. My entire sense is that as credit growth starts picking up over the next few quarters, SBI with its large network with the capital adequacy, the balance sheet expansion should be far more smoother for SBI compared to the other public sector undertaking (PSU) banks.
Even in terms of their asset quality issues, a lot has got recognised both in terms of provisioning as well as in terms of the watch list that they have probably created. So in that sense as the concern starts abating on their balance sheet with the working capital constraints for a lot of user industry start going down specifically on iron steel, metals, real estate, gems and jewellery, you will see credit growth picking up steadily and credit cost coming down, which will improve their ROAs, ROEs. So I will remain positive on SBI within the PSU space and even the corporate facing private banks like an ICICI Bank -- the worst in my opinion should probably get over in the coming quarter. The same logic probably applies for ICICI Bank. So I think apart from HDFC Bank, ICICI Bank and SBI, would probably be the standouts for the banking universe for me.
Sonia: Give us a quick word on Nestle because that stock is down, the pace of recovery is quite slow in the earnings, what would your view be?
A: The earnings recovery is going to be very slow and gradual for Nestle and if you look at the management -- the new Managing Director has probably come into place for Nestle and the entire fiasco that we saw on Maggi, they are probably trying to rebuild the entire plan in terms of spending exercises as well and in fact in terms of communication processes as well that they are also trying to get into newer segments like healthcare and nutrition, skin care. Skin care is almost 11,000 crore on market share, HUL is almost having a 47-48 percent kind of a leadership position there and you have got local competitors like Emami and Patanjali. So again competition intensity is going to be huge into the newer segments that it is trying to foray.
On the beverages side, coffee is one segment which has gained significant market share where is still regains top spot but HUL again it is catching up on the beverages space there.
So the confectionary is what happens with the food, market, they are growing at a very tepid pace on Nestle and the face lift is going to take time. So my own sense is that the earnings will very well be sluggish. It is going to be very slow and gradual recovery and the multiples around the higher side. So again if you are holding the stock at lower levels, continue holding but it doesn’t make sense in buying the stock at the current juncture.
(Disclaimer: Reliance Jio is a part of Reliance Industries that owns Network 18 Media & moneycontrol.com)