What is your take as far as HDFC Bank is concerned? Would you use this dip as a buying opportunity or you will wait for the merger to play out?
Earlier it was expected that there will be some buying which will come over from FII because of the merger. But now, I think because of this regulation of mutual funds, so it is expected that there might actually be some selling. So, I think that is the conflict impacting the stock price movements. In any case, post merger there will be uncertainty and to that extent I think people might prefer other banking stocks. Near term, I think the main reason for the banking stocks to be a bit weak has been all this news flow about RBI coming out with new regulation on secure bonds and higher risk limits which is impacting the sector. There is no reason for RBI to be doing that. NPAs of most banks are near record low, so let us see how that actually plays out. The other thing also is that it is the heavyweights which are not really firing ahead. I mean, IT stocks aside, but even if you look at Reliance, for instance, we have already spoken about HDFC Bank, it has not moved at all and thereby, I guess that gap between that all-time high on the index to where we are currently struggling at. What would it take for Reliance to move up further?
I think Reliance has been quite stable. So, it has not moved up and it also did not move down substantially. So, I think it is in a range, it could be range bound for some more time. But I think overall after a prolonged period of underperformance we could see outperformance coming up from Reliance and I would think that there is a possibility that Reliance will move to its all-time high and it could provide a 15% kind of return to investors over the next few months.
Pharma has begun its move do you think IT can anytime soon or are you still circumspect about what growth they would do at this time of AI?
Both are very different sectors. They were correlated only that rupee depreciation actually helps them because of the export nature of the business, ex of that there is relative congruence in the businesses of IT companies whereas pharma companies have different business models; some are domestic focussed, some have exports, some are speciality, some are generic.
So I think individual stories do play out. But pharma has been ignored for several years and that is why we see the interest and because they do not move up crazily and especially the large cap ones because the moves are steady so most people do not even notice when they move to new highs, 52 week over a time. For example, something like Dr. Reddy’s, if you see the way it has moved up steadily. So I think these companies could still give steady moves. Turnaround potential still exists in Lupin and that is something which looks interesting from a pure value perspective, given the fact that its peak was more than Rs 2000 and today it is at 800, although it has bounced from 650 odd levels.
If I had to ask you a top buyer, a consensus at this point of time, which will be that stock which you will buy and forget for a year or two?
I think that from a large cap side, I would think that as the banks are getting beaten down or not performing despite strong performance, I think from a perspective of one or two years, I would think ICICI bank looks reasonably placed because operationally they have been doing well, balance sheet is very strong. I think they should be able to sustain their performance.
In the mid and the small cap universe, anything that is looking interesting?
So mid cap, several companies are doing well. So I think among the ones which are like, Ahluwalia Contracts looks good because they have been steadily getting strong orders, their order book today is more than three times what it was last year. They are not doing to any BOT kind of projects and earnings growth visibility over the next two, three years is very strong and it is a virtually debt free company which is tough to find in the construction, infrastructure space. So I think that is where we should see 30 to 40% kind of earnings growth next couple of years and the valuations seem reasonable.
