Axis Securities is maintaining a positive long-term view on both stocks - HDFC Bank and Bajaj Finance, the major private players in their segments.
"We remain confident in HDFC Bank's ability to sustain its growth momentum given the enormous opportunity post the merger, be it in terms of a more extensive customer base, larger distribution network and higher cross-sell opportunities to existing HDFC Ltd customers," Neeraj Chadawar of Axis Securities says in an interview with Moneycontrol.
Chadawar, the head of quantitative equity research boasting over 11 years of extensive professional expertise, is also optimistic about Bajaj Finance's promising growth outlook in the medium term. The strength of growth potential appears robust across the majority of their product offerings.
Q: All the IT largecaps out with September quarter earnings. Do you think the worst is over for the sector or do you see further disappointing earnings in the second half of FY24?
On an expected line, largecap IT Services companies posted muted Q2FY24 primarily due to challenging times from the world's largest economies. Regarding the demand scenario, many Indian IT services are facing delays in decision-making from most verticals, mainly aided by prolonged macroeconomic conditions except Retail, CPG and Manufacturing, etc.
Such delay may cause a lack of visibility, at least for the next couple of quarters, which could tamper the ramp-up of various deals, resulting in slowing down the growth rate. The December quarter is also considered a seasonally weak quarter because of the vacations. We can expect some recovery in Q4FY24 and a ramp-up of the deals they have won in the previous quarters.
Also read: India emerges as a strong contender in global supply-chain diversification: BofA
Q: Any thoughts on the FMCG sector and management commentaries as major FMCG players released their September quarter numbers...
FMCG demand remains stable during the quarter, with urban demand continuing to lead and the rural markets remaining muted. However, gradual recovery is likely in the sector in the upcoming quarter, especially in the rural areas, led by a) an entire festival season in Q3, b) an increase in urban remittances c) government capital expenditure leading to job creation and d) moderation in the inflation. In addition, premium categories continue to grow faster than the mass segment.
Q: Do you expect the upcoming festive season to be strong for auto companies?
Our recent channel check indicates the optimism by the dealers in passenger vehicle segments with robust demand expectations of SUVs (sports utility vehicle) over the entry-level segments. A similar trend in the 2W (2-wheeler) category, with higher demand, is expected for the 125+ CC segment over the entry-level bikes.
Also read: Paytm raises revenue by 32% in Q2 on strong loan growth, losses narrow to Rs 292 crore
We also notice some degree of optimism in dealers' confidence versus the last year based on a) Good traction during ten days of the Ganesh festival, b) overall better demand visibility, and c) better availability over the last year.
Q: Your take on the Fed Chair Powell's speech this week.... Do you still expect the major possibility of one more interest rate hike in the next two meetings?
Yes, the recent surge in the US 10-year bond yield indicates that one rate hike is expected in the upcoming FOMC meeting. The market remains watchful for the tone of the US FED chairman and the commentary on the future trajectory of rates in CY25.
Q: Do you think one should prefer building materials space over real estate?
The demand for real estate is visible not only in the top 10 cities but beyond that, a similar trend is also visible. The demand momentum in the sector is likely to continue in upcoming quarters as most of the ready or nearer possession inventories are sold out.
Also read: Reliance Industries to declare Q2 results on October 27
One can play the cycle with building material themes as they provide more comprehensive investment options in tiles, wire and cables, cement and wood panels, etc., as they capture the PAN India growth story.
Q: Do you see the limited upside in crude oil prices if Iran and Saudi don't get involved in West Asia conflict and also consider the global economic environment?
Currently, markets are concerned about the following macroeconomic developments:
a) Rising US bond yields
b) Stronger dollar index
c) Rising crude prices.
Yes, there is an upside risk for the crude prices if more countries join hands in the current geopolitical tension, which will lead to adding a risk premium to the crude prices. If crude prices sustain above the current levels for a longer time, that will add an upside risk to the current inflation expectation for the remaining part of FY24 in the domestic market.
Also read: Surge in US bond yields threatens tight global conditions: What experts are saying
Q: Your general take on HDFC Bank and Bajaj Finance, especially after their earnings and commentary?
We are maintaining a positive long-term view on both stocks. The critical concern around the HDFC Bank after the merger has been a sharp contraction in net interest margins (NIMs). A similar trend was visible in Q2FY24 for HDFC Bank, in which NIMs disappointed and contracted sharply. However, we expect margins to recover in the coming quarters as the bank substitutes high-cost debt with deposits, releases excess liquidity, and improves the share of retail loans in the overall portfolio.
We remain confident in the bank's ability to sustain its growth momentum given the enormous opportunity post the merger, be it in terms of a more extensive customer base, larger distribution network and higher cross-sell opportunities to existing HDFC Ltd customers.
For Bajaj Finance (BAF), we believe the growth prospects over the medium term look promising, with growth visibility across most products remaining strong. Along with its existing products, the company plans to foray into newer segments such as new car financing, emerging local corporates, tractor financing and microfinance.
The scaling-up of the new products should further support BAF's growth momentum. Additionally, the recent capital raise will further strengthen the company's capital position and make BAF well-prepared to steer superior growth amidst the increasing competition.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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