Yes Bank far from being a multibagger; betting on these 2 midcaps: Nischal Maheshwari

“Among midcaps, Balrampur Chini has been one of our top picks. We like Cera in the building product space. They have managed to hold their margins very well. The third midcap which I like is Crompton Greaves,” says Nischal Maheshwari, CEO-Institutional Equities, Centrum Broking

Because of declining crude prices, Pidilite, Asian Paints, commodity consumers which are dependent on oil, have also done well. Is that trade here to stay?
Yes I think so. Even the consumption seems to be picking up and if the inflation comes off, we will see prices coming off and as people have more money, consumption will also pick up. So, it is a double positive for them. I would continue to be invested in those stocks.

Is it time to disregard the conservative fund managers who say that the only way a stock trading at a PE multiple of 60-70 will move is lower?
There has been the same story for the last 10 years and none of the stocks have become cheaper. Ten years ago, Asian Paints used to be quoted at 25-26 times and today it is 50 times. So none of these stocks have become cheaper. We see a similar story in Pidilite and all the consumption names because they are strongly resilient with very strong margins. We know the whole story about FMCG with the huge cash flows. That is why I was so positive on ITC because that was one stock which was languishing at 15 times. It is a very strong company and its operating cash flows were equal to the next three-four FMCG companies. We are positive about the whole pack.

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I like to draw your attention to the Yes Bank deal, Two large PE investors with a large pool of capital have come and put their shoulder to the wheel. They would like to rejig the management, they have analysed the book and the deal has happened at a one-time price to book. Could Yes Bank be one of those small allocations which is worth it in everyone’s portfolio for the next two or three years?
If you are a real believer in multibaggers, you can try and see. A lot more tick marks are still needed for Yes Bank to become a multibagger. My view on banking remains that one should be in the largecap banks only. There is no advantage today of any mid level or small level bank. Basically, a largecap bank has got a large pool of capital, large pool of talent and a large availability of capital again which if it is required for growth and the reach. How can a small bank in any way compare or can compete with the likes of the ICICIs, HDFCs and SBIs of this world? So my vote goes to the largecap banks. I would be totally invested in largecaps until and unless they have a niche financial capability which I do not think Yes has at the moment .

Give me your list of favourite midcap stocks – two or three names which you wouldn’t sell at any cost, which you want to keep for three years?
I would go for a few cyclicals. We like the whole sugar pack very much and that is because of the change in the energy outlook and the government saying that energy security is more important. Balrampur Chini has been our favourite pick out there and that is one our top picks.

We like Cera in the building product space. They have done very well. They have managed to hold their margins very well. It is a good stock we want to be holding and adding.

The third one which I like is Crompton Greaves. I think after this acquisition of Butterfly, now their portfolio is complete. They are leaders in the fan space, they are leaders in other spaces also and with this Butterfly, this is a very good place to be in. So these are the top two or three midcap picks which we like.

If the IT sector has a 20% attrition which means that the wage hikes for that sector for this year are going to be in double digits. That is a large pocket and it is going to drive consumption of cars, real estate, gaming, shoes and urban brands at least in some of the major metros. Do you buy my logic?
I agree with you, basically consumption is the way to go forward. I do not see any fall in consumption. By the way, everybody talks about the US inflation getting into a recession. I was talking to one of the fund managers just on the side and he gave me an interesting idea. He said that yes, maybe we will hit a recession, but it will be a paper recession because we are at a 9% inflation level and our real rate of growth will be whatever inflation minus interest rates are there and that cannot be less than 6%.

The US has not grown 6% in the last several years. So while we are talking about recession, there is a huge amount of growth – 5-6% — still. Inflation has its own worries or idiosyncrasies and that is why we see this consumption everywhere across the world. I was in the US for two weeks and everywhere I could see a huge amount of consumption, huge crowds. I do not see any sign of recession anywhere.