Last Updated : May 04, 2017 01:32 PM IST | Source: CNBC-TV18

Small correction good for mkt; like housing fin cos: Religare Cap's Gautam Trivedi

Gautam Trivedi of Religare Capital Markets cited that India was the third highest recipient of net equity inflows. He recommends staying away from pharmaceuticals as uncertainty and fears around US drug regulator continues as well.

Giving an upbeat view on the market, Religare Capital Markets said that it expects strong momentum on the Street to continue.

"Among institutional investors, love for India continues and that will drive the momentum," Gautam Trivedi, MD & CEO, Religare Capital Markets told CNBC-TV18. He further stated that India was the third highest recipient of net equity inflows. Having said that, he feels a very small correction could be healthy and positive for the market as well.

On sector-specific recommendations, he prefers housing finance companies as they are performing very well. “Among the entire NBFCs, this is the safest zone to be in,” he told the channel. There are stocks that have done very well and one can see compounding stories over the past 15 years as well, he added.

Given a choice between NBFCs and private sector banks, Trivedi chooses the former as on a year-to-date basis they have performed well. Within them, he likes brokerages-cum-NBFCs than pure-play NBFCs as he sees more juice in them in the near term.

Trivedi advises on staying away from pharmaceuticals for now. “It has been a huge laggard, with the exception of Cadila, which remains our top pick," he said, adding that one must focus on Cadila which is a compounding story. Uncertainty and fear around the drug regulator still remains.

Below is the verbatim transcript of the interview.

Latha: There is an ordinance that is awaited, we do not know what it will say but nevertheless, are public sector undertaking (PSU) banks a buy?

A: PSU banks shocked investors year-to-date (YTD), the performance has been terrific, they have outperformed, for the first time in a long time I have seen them outperforming their private sector peers which is a great news but that seems to be more driven by pure valuation than any structural or fundamental change in the way they have been approaching their business. We haven’t seen evidence of that yet or even approaching their NPL problem.

So as far as the ordinance is concerned, it is great to see that the RBI will be given more teeth. As you said we do not know yet what is in the ordinance but the fact is in a previous attempts by the RBI to get banks to get cracking on the NPA problem haven’t had much success. Let us get real about it. We had Vijay Mallya walk away out of the country with seven suitcases as the press reported and the banks could do nothing to stop him.

I think as long as the RBI gets real teeth and can crackdown on the NPL problem, I am not sure if the banks on their own have had much success frankly.

Anuj: Housing finance has had a huge rally, do you still stay invested here?

A: I think so. That is the space that is very clearly doing very well. The charge is the residential property of the borrower and among the entire non-banking financial companies (NBFC) space, it is clearly one of the safest zones to be in and if you speak to Gagan Banga at Indiabulls Housing, they have been through multiple areas within the NBFC space and this is their sweet spot and they have discovered it after a lot of hard work and finally this is where they marked assets over Rs 1 lakh crore and they are doing a fantastic job. So if you look at the overall market within the housing finance space whether it is GRUH Finance which has even outperformed its parent, HDFC, those stocks have done extremely well. There have been compounding stories over the last 10-15 years.

Sonia: The other space that is surging is the retail space. V-Mart is up 10 percent now and the volumes are also picking up, not too high but one lakh shares already traded on V-Mart, there is a big growth story that is brewing in this space now. We are seeing some terrific return ratios for some of these companies, strong results, fabulous listing from the likes of Avenue Supermarts, this is a theme that you have liked and V-Mart is the stock that you have preferred as well, is this a longer-term story, a two-three year story that is just starting?

A: I think it is. Kudos to Lalit Agarwal for building out a fantastic business and focusing on tier-II and tier-III towns, which is where a lot of the initial supermarkets and initial retail stores did not even focus on. Boldly went where no supermarket had gone before. This business model is very strong and more importantly, he is going to hugely benefit from a new Bharatiya Janata Party (BJP) governments in both Uttarakhand as well as in Uttar Pradesh (UP).

Latha: Let me come to the choice between private sector banks and NBFCs, what is your pecking order?

A: On YTD if you look at the NBFCs especially the brokerages-cum-NBFCs like Edelweiss, India Infoline, Motilal, they have done phenomenally well and they have beaten even private sector banks. So the pecking order at least for the near-term still seems to be the NBFCs followed by the private sector banks and given the run up already in PSUs, I put them in number three in the pecking order.

Latha: Within NBFCs you spoke about those brokerages, you did not refer to the grand names like Bajaj Finance, so where does that Bajaj Finance, MMFSL figure and the housing?

A: I think housing finance would definitely be top of my list from a very long-term perspective. These are basically a multi-year compounding stories even GRUH Finance continues to go up, HDFC the parent continues to go up as does Indiabulls Housing Finance and of course LIC as well. So these are great stories from a longer-term perspective but from a near-term perspective, I see more juice in the brokerages-cum-NBFCs versus the pure NBFCs.

From MMFSL perspective, that has unfortunately been lagging, it is only up about 20 percent this year, so it has lagged its peers and that goes to another story which is worth discussing is the fact that rural plays in India YTD have significantly lacked whether that is Bajaj Auto or a Hero or MMFSL.

Anuj: Has time come to take any contra buy in the large pharma stocks, any of the pharma stocks that you would put some money right now?

A: Pharma space has been a huge laggard this year with the exception of Cadila, which is up about 27-30 percent and that has been a top pick in this space. The rest of the stocks are floundered and I think the uncertainty in the fear of who the food and drug administration (FDA) or where they will strike next is still there. So right now, stay clear from the pharma space and just focus on Cadila which is another compounding story.

Sonia: What is your view overall on the markets over the next three-six months? It has been in a consolidation mode for a while but do you think that there is any trigger that could lead to a breakout?

A: Let us look at what we have seen YTD from an India perspective. It is the best performing market in Asia. In dollar terms we are up 20 percent. In terms of absolute foreign fund flows, that has now become a secondary thing compared to the amount of money that we are seeing domestically but in terms of foreign fund flows and how foreigners view India within the overall emerging market space, we have been a third highest recipient of net equity inflows after Mexico and Taiwan. The love for India continues from institutional investors globally as well as domestically – domestic they are not going to go overseas and invest but the fact is that is going to continue to drive a strong momentum in the market and of course everyone talks about a correction and it is around the corner and I hope there is a small correction, which will be usually positive for the market but outside of that, this market is going to continue to grow over the next three-four years.
First Published on May 4, 2017 10:38 am
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