IndusInd Bank can be an outperformer in the banking sector: Dipan Mehta

"We have never been great fans of metal stocks or metal commodity per se. They have not been great value creators also in the past and typically when the world is slowing down and there is lot of focus on inflation, obviously commodity prices will get impacted and I am pretty much negative on the entire sector," says Dipan Mehta, Director, Elixir Equities.

So not seeing any runaway rallies for the markets whatsoever but yesterday we did see that attempt at a pullback. Wondering what your take is in particular when it comes to that entire metals basket, I asked because there has been that pick up once again after last year's under performance and you are seeing some of those metals stocks now come back into the spotlight, time to bet in the long haul on these names?
Yes, see the markets are just fluctuating in a narrow range and focus is more on specific stocks as and when the numbers are coming through. Unfortunately, even good numbers are being sold into and that is a bit disappointing and clearly points out to certain technical or liquidity issues with the market per se. Coming specifically to metals, we have never been great fans of metal stocks or metal commodity per se. They have not been great value creators also in the past and typically when the world is slowing down and there is lot of focus on inflation, obviously commodity prices will get impacted and I am pretty much negative on the entire sector.

I prefer to go with the commodity consumers, metal consumers, could be automobiles, appliances, engineering construction. I think we should be in a situation or an era of slightly benign commodity prices. So, I would not want to allocate any investment into the Indian commodity producers steel as ferrous or even non-ferrous for that matter.

I am wondering what did you make of the largest FPO ever, Adani Enterprises, because part of the critique was that there is very low float, you do not really have supply but there you have it now and at a significant discount as well for both retail as well as non-retail, a subscribe you think?
I do not want to comment on whether it is worth subscribing or not because the Street view is that Adani Group stocks are expensive and they are expensive because of low floating stock. The companies are constantly acquiring some other company or taking on a new project or some new venture and that does keep a lot of the retail traders pretty much excited about the stock but one positive fallout of this follow on public offer is it will certainly include liquidity and it will aid better price discovery.

This is certainly going to be quite positive and maybe you could expect such more follow on public offers from other Adani Group companies as well and then maybe the earnings will be more in line with what their peer group earnings multiples are. But broadly I think it is a mature type of a company, it has been an incubator for many of its subsidiary businesses or sister concerns and I would have more preference for some of the other businesses like say the green energy business for that matter. I think that looks more interesting and even the gas business looks more interesting. But this is a holding company and I think it will get a good response.

What is your outlook then on the summary of the kind of numbers that we have seen from the entire IT basket, now that we are done and dusted with most of the numbers would you say glass half full or half empty?
I slightly beg to differ. Actually from our perspective the numbers are yet to come because we have focussed a lot on midcap IT and so far I think only Persistent Systems and Mastek have come out with numbers. I was pretty satisfied with what Persistent Systems reported, so we still have a long way to go as far as midcap IT is concerned. Of course, largecap IT model is done and dusted agree with you over there but results were pretty decent given the challenging circumstances, maybe all the deal flows and the deal wins which they had in the previous quarters now those projects are scaling up and they are certainly benefiting and therefore generating the revenues for these companies.
Going ahead I think you could expect two-three soft quarters before the deal flows start to pick up post all this recession talks in the economy and global headwinds are over and done with.

Perhaps again you could see a revival in the demand and the growth levels but let us keep in mind that IT is a long-term secular growth business and industry and our focus is on midcap IT where even smaller deal wins can make a big difference and these midcap IT companies are focussed on very specific verticals where they may be able to manage a slight cut in IT spends by their customers.

While we are still in the midst of earnings and lots to go but how much of a trigger will Budget play out to be?
I think Budget has a play on the sentiment of the market and to an extent the expenditure side has an impact on certain companies which engage in certain sectors. So if the finance ministry decides to spend more on a specific vertical like say water projects or specific infrastructure projects or railway spending, then the companies engage in executing those projects certainly will get a bump up.

But by and large I think a lot of sectors are not impacted by the Budget. Entire indirect taxation has gone to GST and the real interest in the Budget from investor and an actual consumer point of view or assessee point of view is the kind of relaxation which one could expect on the direct taxation side. Also, always there is a hope that the direct taxes on personal income may be slightly reduced especially at the lower level and there is a case for it because inflation has been rising significantly last year or so and tax revenues are buoyant.

So I think the finance ministry can take a bit of a gamble over here and reduce personal income tax rates at least in the lower slabs and that I think will be sentimentally quite positive.


What are your views on real estate, you have liked the space in the past and all of 2022 we have seen the stocks only consolidate. Just wanted to understand whether this theme is springing back again?
Yes, absolutely. Typically real estate cycles are very long of around 8 to 10 years and this cycle has just about begun around the time the pandemic got over and we are seeing a lot of consolidation which has taken place. Also real estate companies per se have become far more, I would say, savvy in terms of managing their cash flows. They are not taking a lot of debt, their focus is on sales and more and more bookings and on trying to improve the return ratios.

And keeping all of this in mind, I am very positive, but would like to go for the larger developers like say a Macrotech or even DLF for that matter.

Also, one can go for Sobha. This is a good long term secular story for the time being and demand for housing particularly affordable housing remains pretty much strong. So, if you factor in that interest rates may remain stable then you could have a positive outlook on the real estate stocks.

It is quite a bullish call coming in for IndusInd Bank's performance but given how diverse the entire banking pack is turning out to be with ICICIC Bank, SBI’s, outperformance now behind us and maybe in future as well who knows. And now HDFC, HDFC Bank as well bringing up with the MSCI headroom as well or rather overhang as well getting resolved.
Incrementally the news flow is positive for the banking sector and the best results so far this season have come from the banks. Whether it was HDFC Bank or Federal Bank and now IndusInd Bank also came with a decent set of numbers. But I just want to put across an insight here that now instead of focusing more on the NPAs and the top line bottom line, we are focusing on the deposit growth rates and at 14% deposit growth rate for an IndusInd Bank, I think it is pretty decent in line with industry. So that is where I think the next battle is going to be for the banks in terms of raising resources to lend because on the lending side. They are at an advantage compared to NBFCs because of the low cost deposits, but raising resources keeping the capital adequacy at high levels is going to be more of a challenge as also managing technology and there is going to be a lot of competition when it comes to raising deposits as we have seen the entire sales advertising pitch has changed for a lot of the banks over there.

But nonetheless, I think that the stock certainly can be market performer or an outperformer within other stocks in the banking sector as well.

What is the outlook, we have got Pathaan, Shahrukh Khan's latest film, I understand tickets in New Delhi are selling for as much as 2000 bucks and above? Wonder what your outlook is, maybe not on whether or not you are going to watch the film but perhaps on what this could mean for these ailing multiplex stocks?
Certainly the merger is going to be positive for the companies and the minority shareholders but this trend is coming in where there is less and less footfalls to multiplexes and people are more comfortable watching a lot of content on the OTT platforms. And there are only so many big budget films that one can produce in a year and even the producers of these big budget films are taking a huge risk factor given the high cost of production and if the box office revenues do not keep pace then they are looking at a very large loss over there. So I think that there is a slow transformation happening as far as movies is concerned and more and more the content and quality and viewership is shifting towards the OTT.

So I am getting a bit concerned as far as these multiplex stocks are concerned, they are not really cheap. Their ROIs are generally low and the earnings are very volatile depending upon what the releases have been. So considering all these facts, I would just like to wait and watch and maybe slightly underweight within the sector. But certainly you could have a trading rally post merger of Inox and PVR.



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