Capex is going to be a very big theme for next two years: Hemang Jani

“We should have a lot of weightage for the banks – be it private sector banks like ICICI Bank or Axis Bank or PSU banks like SBI, BoB, Can Bank. All these should do very well,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL.

Banks was the story for the last six months and will continue to be so this Samvat as well. What do you make of ICICI Bank, Kotak and a clutch of smaller banks’ earnings? Do you believe that banking outperformance is here to stay?
Absolutely. Number one, the overall weight of the banking sector and NBFCs and financial services is very high at about 40% and a good part about the banking sector is that after going through a bit of a rough patch in the last one and half years of corona, in terms of balance sheet, they are looking much better with a lot of provisioning. With a better balance sheet and credit growth looking much better both on the retail side as well as through the capex cycle, there is a sense that we will see a very big growth over the next two to three years which will be led by the wholesale as well as the retail sector.

The overall ROEs etc are much better and valuation comfort is very high. If there is one sector which will be the driver of the entire rally over the next two to three years, it will be banking and within that, we like ICICI Bank. This is a consensus buy. PSU banks have struck a positive surprise in terms of numbers and the valuation comfort is very high.

Just to give you a perspective, Canara Bank has gone up 40% but is still quoting at 0.5 price to book and maybe 4-5 PE. We should have a lot of weightage for the banks – be it private sector banks like ICICI Bank or Axis Bank or PSU banks like SBI, BoB, Can Bank. All these should do very well.

Is there any point asking about IndusInd versus Axis? It is looking like right now you are going to be betting on the smaller PSU names?
In the case of Axis Bank, overall the extent of surprise was very high. What people were looking at in terms of growth, in terms of ROA or margins over two years, the bank delivered this quarter itself. That is why the market is reacting extremely positively to that number. We continue to have a positive view on IndusInd Bank. This quarter, versus expectations, the overall growth was a bit less but in a timeframe of one or two years, we continue to have a positive bias there as well.

HUL versus Nestle what would you do?
Overall, the kind of product portfolio HUL has is very different from that of Nestle. Nestle is slightly more focussed on food products, baby products, so on and so forth. Though they both belong to the overall FMCG category, in terms of stability and diversity, HUL is definitely better placed

This quarter, volume growth was slightly less versus market expectations, 4% versus the consensus of 5% and a bit of this rural related uptick is something that people are not very sure about how exactly it will shape up, whereas in the case of Nestle, we saw much better stability in terms of volume growth and margin picture. We would continue to be positive on HUL, along with some of the other names like Dabur where we see much better volume growth over the next few quarters.

A lot of companies in the power pack, infra space and in various other capital goods space have done pretty well. Are there any such names that you like that probably do not react to earnings but tend to go up when underlying asset value goes up?
Yes, in terms of the capital goods, we do feel that there is a case for major rerating of the sector though the stocks have already run up about 30-40%. Some of the prominent names like ABB, Siemens, L&T are the names where we think that from a next one to two year perspective, there is going to be a massive growth led rerating.

Partially, it has already happened but the actual numbers and the order book reflect that people will get more excited about it. We do think that you can play the capex theme through banks also because we will see that growth reflecting in the overall credit growth they would show. Capex is going to be a very big theme for the next two years.