There is a typical pre-Budget rally in PFC and REC; be particular about getting a proper exit: Hemang Jani

“NBFC as a space looks to be in good shape and the business updates for this quarter and even the previous quarter were decent. We are seeing good traction on the credit growth front and balance-sheet wise and asset quality wise, the companies are very well placed. If one has a two-year view, maybe having a small exposure to NBFCs like Mahindra Finance or to some extent Chola or L&T Finance would be a good idea,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL

Will we continue to be resilient like in 2022 or do you think the global weakness is going to rub off now?
Yes, I think. It has not been too bad in the global context. We were up 4% and it is like a T-20 game where you have all your important wickets and there are many overs to go, so not to worry much. Things are looking good. We are in the earnings season and it looks like it is going to be a good earnings quarter, at least for some of the major names and that should give us a lot of comfort.

At the end of the day, we cannot wish away the global volatility and challenges which are part and parcel of the game but managing to go through this kind of a turbulent phase without much damage is definitely very comforting.

What has changed for insurance? Why are these stocks making a comeback? Is it a sectoral rotation or something else?
There was a very smart pullback in the last few days and the primary reason could be that the sector has actually underperformed in the last one and a half years and when we look at the data, it is sort of a slow growth but some companies are displaying good growth in the annual premium collection.

At the end of the day, people want to look out for opportunities where the valuation comfort is there. So, at an aggregate level, the valuation in terms of price to embedded book is looking quite okay. So definitely it is a sector which could come back in the reckoning and for those who are looking for low risk returns, it definitely is a good one to have some good exposure into.

What is your view on a stock like Mahindra & Mahindra Financials? Look at what they have reported for the months of November- December. There is no challenge for them in terms of collection even though there was an RBI red flag because of the third party route which they used for collection. Despite that also, their slippages are not large?
Yes, NBFC as a space looks to be in good shape and the business updates for this quarter and even the previous quarter were decent. We are seeing a good traction on the credit growth front and balance-sheet wise and asset quality wise, the companies are very well placed. The only issue that I can see is that versus the growth that we are witnessing on the banking side, be it PSU or the private banks, some of these NBFCs are not displaying that kind of growth which could be an area of concern.

In M&M Finance also we saw that but at the same time, if one has a two-year view, maybe having a small exposure to NBFCs like Mahindra Finance or to some extent Chola or L&T Finance would be a good idea.

If Tesla is down 70% what does that do to EV stocks? What does that do to a stock like Tata Motors?
A very interesting point you have made is the big drop in the market cap of the marquee names like Tesla, Apple and to some extent Bitcoin. That could bring about some sort of repercussions for the financials. But my understanding is that the whole idea of Fed tightening and liquidity being sucked out from the system was that all these highly valued companies, where the money was chasing them, that was the objective. If we see such corrections and if it is happening without disrupting the financial markets because so far whenever these kinds of things have happened, we have not really heard of any major issues. So, the markets have corrected but there are no other repercussions as of now. That is definitely comforting.

As far as the EV story is concerned, Tesla was by far the best EV play and now that it has corrected, the focus will shift to the other emerging companies which have the capability to get some market share and some growth because that story is pretty much there. Maybe in the next three to five years, we will see some companies emerging stronger there.

I do not think we should read like that where Tata Motors or some of the EV players could come under threat because of the fall in the Tesla stock price.

Why have REC and PFC suddenly shot up 10-15% within a couple of days? Has fundamentally something changed here?
Typically before the Budget, there are expectations around power reforms and typically some of these power companies, fertiliser companies, power and financials are in the action and some of them provide good dividend yield also. That could be one reason why we are seeing the action there.

Having said that, we have to remember that this is just a typical pre-Budget rally and one has to be very particular about getting a proper exit because that is very important because once the Budget is over and if we do not have any incremental triggers, nobody would want to even discuss these stocks. So yes, the momentum is very strong, they are very cheap but it is just a tactical pre Budget rally and that is how I look at it.

What is your outlook on the two-wheeler stocks, rather autos in general, given that reports are indicating that electric two-wheeler registrations are continuing to rise. We are seeing a lot of tier two markets adapting to electric vehicles. How are you looking at EV adoption for the auto space being a game changer?
We see product launch by some companies. There was a lot of hype around it but at the end of the day, I do not think they caused any meaningful disruption. Each company has its own plan to come out with certain products and eventually we will know how each one is doing how much etc.

I think this is one segment where growth has lagged and it is not being looked upon as a sector where people want to own, unlike a PV or CV where a strong growth cycle is visible. So this could be a dark horse may be for next one-one and a half years because if there is going to be overall growth, at some point, even two-wheelers will catch up and within that space, Hero Motors looks quite compelling in terms of valuations. We would really go with that as one stock where there can be a much better risk reward and good upside potential.

Do you think time has come to start nibbling into any of the IT names?
In terms of price correction and the fact that risk reward is looking quite good, I definitely would want to do that but a bigger conviction or comfort will come only post the quarterly numbers and some sort of confidence from the management about what sort of growth we are looking at. Our preview suggests that there will not be a major issue in terms of growth versus what was apprehended in terms of you know this slowdown, recession fears etc.

But we do think that the entire space, particularly the largecap names, are giving a lot of comfort in terms of risk reward at these levels.

Is business slowing down?
I would like to highlight that in terms of the number of accounts being opened, the rate has come down to around 18 lakh per month versus more than 30 lakh a year back. So the new accounts will be opened on higher bases because of the restrictions by the regulator; there is some sort of a slowdown but at the same time when you look at the overall market volume, the derivative side the volume keeps growing and that will drive the overall revenue and business for the brokerage firms.

I do not think there is going to be any major issue but yes the growth in terms of revenue for Angel will not look that strong because of the kind of slowdown that we have seen in the cash segment and slightly lower growth in the derivative side. That is how I would look at it.