In an interview to CNBC-TV18, Prakash Diwan, Investment Evangelist at prakashdiwan.com shared his readings and outlook on specific stocks and sectors.Below is the verbatim transcript of Prakash Diwan’s interview to Latha Venkatesh and Sonia Shenoy.Latha: I just wanted a word if you looked at the Canara Bank numbers. The public sector undertaking (PSU) bank rally has been on and Canara Bank has amazingly reported just a 1 percent rise or 2 percent rise in its gross non-performing assets (NPA), slippages have fallen. Do you think it is good to go for more, the stock?
A: What is important here is that people need to get convinced that this is not just a flash in the pan. It does begin a trend of improvement somewhere. This is the first large PSU that is, barring State Bank of Bikaner and Jaipur (SBBJ) and all which really are not so significant. So it is pretty interesting to see their numbers. The provisioning also -- Canara Bank was never very aggressive in the previous two quarters, so they have probably adopted a stand that they could completely get out of this thing by setting aside that huge provisioning. But, I would not still be in a hurry. It is not a screaming buy or something, but it does start making you sit up and take notice that yes, there could be some sort of an improvement in the trajectory for PSU banks. And if this were to follow the way Bank of Baroda (BoB) or Punjab National Bank (PNB) or something, then of course, the rerating is overdue. But I would still look at some of the other banks as well before taking that conclusion.
Sonia: Yesterday, when Hitachi Home & Life Solutions’ numbers came out, I only thought of you, because you have been so bullish on the consumer durables space and what a fabulous set of numbers right?
A: Look at two very important things which have happened. One is earnings before interest, taxes, depreciation and amortisation (EBITDA) level growth, 40 percent kind of numbers do not happen on such huge basis and second, the margins; if companies continue to improve margins even in this state of inhibiting pricing and demand that is still to take off. What happens when people finally start getting the money from the Seventh Pay Commission, that is due in the first half of August, so you can imagine, we are up for a big rally, not only just Hitachi, but look at some of the other players which will also benefit out of this.
However, consumer electrical, as a space is revving up and this will probably be the theme of the second half of FY17. So, continue to be very positive on this and of course, the other companies which are there, Lloyd Electric and Engineering, BPL which are making a comeback, all of them will start warranting attention. So, you will have to look at some of the undervalued stuff now.
BPL is one company that does not come to everybody’s mind when you talk about white goods but they used to be market leaders at one point in time. They have made a comeback, reactivated a lot of the distribution. They have also got a medical device business to balance out the revenue streams. So, interesting space and we will probably see it abuzz.
Hitachi Homes is probably a bellwether in this space and you should be looking at this space more actively because when we talk about consumption right from pens and pencils to look at consumption of housing finance. In between you have a huge spectrum of goods that people will buy and these are companies that, especially the ones which have product superiority, pricing power, they will do well. And increasing margins in this tepid environment is what I was very impressed with in Hitachi’s numbers. So, kudos to the business and the way they have run the business, and I am sure other stories will also start doing rounds now.
Symphony’s results today and I am sure they will also come up with something very impressive. So, this space does merit a lot of attention and there is still value here which was a good part. However, most of the midcaps, when you look at them, they have run up so fast that you actually do not have the gumption to talk about a buy call in some of them at this point in time. You keep on saying buy on dips, which does not happen. But, the white goods appliances business is where you could probably get some surprises, some decent valuations still available._PAGEBREAK_Sonia: What would your thoughts be on the kind of stimulus that a lot of these central banks are giving out?
A: Before I talk about that, I just wanted to add, there was a lot of expectation about helicopter money, as they call it, for the Japanese regulators to kind of talk, which is nothing but simple printing of cash and giving it to people, putting more money into the hands of people to prep up consumption. And this is a work in progress on that side. So, this was awaited from most players because this week is going to be fairly important from the US Fed’s move, the Japanese regulators move, because we are in a zone of our own. We are not looking at anything that could upset the rally. But, globally, there is a little bit of a caution that has started from yesterday’s market, if you see the US market, the way it has reacted. If the US Fed even talks about a timeline again of increasing rates, you probably will see a little bit of a setback in this risk on which is there. The Japanese step by the Japanese central bankers is definitely going to continue the risk on for a while because this puts more money into the economy and hence it could also kind of start taking money out of the markets and that is exactly what they are trying to do by keeping the yen softer.
Therefore, the whole point is that everybody is trying, right from the European Central Bank (ECB) to the US Fed, everybody has done their bit. Very soon we will start running out of ammo as well. So, that is the worrisome part and once that happens, you have already seen a situation. Yesterday Nimesh was sharing some stats. Rs 40,000 crore money is coming out of bonds because they are negative yielding. So, if you have real estate, bonds, gold, crude, everything which is slumping down, equities will attract that kind of interest but for a limited period of time and nobody knows what period of time that is. So, it could be getting into bubble territory as far as the central bank moves are concerned, but we still probably have some more rope.
Sonia: I wanted to discuss a couple of more numbers that came in yesterday. Transformers and Rectifiers India, what a strong set of numbers and this is a pack that you like as well. Would you put more money here?
A: Overall this sector is kind of revving up for a stellar year ahead. Sometime back, we had talked about a company in the same space, same genre called Voltamp Transformers, numbers are yet to come, but I am expecting this kind of performance to be replicated across the value chain. Emco is another small player. And the biggies also, in fact one of the best picks which I wanted to share from a short-term perspective was Crompton Greaves; good old Crompton Greaves at Rs 73 or wherever it is, is absolutely ripe for the picking at this point in time. We have not seen interest come into this business after the demerger, but it has continuously built value and the kind of Power Grid Corporation of India order flow that is coming their way, you have seen the rerating Siemens has gone through, you look at the way ABB India is so robust in terms of its guidance. So, everybody is gearing up for a stellar FY17 and Transformers and Rectifiers (TRIL) was the first to flag that off. So yes, you are right, that sector will see a lot of attention. Keep watching because this is going to be something which again, is like we talked about consumer durables, something that has not yet run up to the satisfaction of most investors and you could probably see some compounding stories come here as well.
Latha: Is there anything else in the results that have come over the last couple of days that has stood out for you?
A: Maybe a bit dated, but Hindustan Zinc is a stock that has not come into the reckoning. We have seen some positive murmur about the zinc business overall, but if you understand the numbers and interpret them, go to the next level and figure out why they were slightly tepid. The management has accepted the fact that some of their largest mines have had very little content of metal coming from the ores. So, they have had a lot of excess and additional resource that were allocated to the mining business, so the throughput has not been as expected. Having said that, that means that in subsequent quarters you will probably not factor in the kind of steep throughput ratios that were earlier available and that has already been priced in. Zinc prices have already started moving up.
However, remember one thing that 20 percent of Hindustan Zinc’s revenue comes from silver which is a by-product in that entire process of making zinc. And silver prices are likely to be much stronger going ahead. So, the subsequent quarters are going to be very rewarding for Hindustan Zinc. It has just rallied about 15-16 percent year-to-date. So, it is not really something that has participated in the rally as well. So, you could look at that very actively.
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