One can enter Reliance whenever one wants to as far as pricing goes: Anand Tandon

"Banks will have better margins this year without question and that is one of the factors underpinning the earnings growth for the index as well," says independent analyst Anand Tandon.

Did you tell your clients to temper expectations in 2022 and look to make good returns from banks?
If one assumes that interest rates have bottomed out and from here on there is a possibility that they will move up, the chance of a PE expansion becomes less likely. That means that we are now going on basically just the earnings. So long as earnings continue to grow, one should expect to see the market also continue to remain firm. But there are two issues here; one that the expectations of earnings growth has already been factored in to some extent and two that we may actually get a slight earnings degradation as we go along, if inflation remains where it is.

So with those two put together, one may find that this year, the return expectations are a lot more muted compared to where we were last year. That does not mean that one cannot have sectors or companies that may continue to outperform the market or that the market itself may not go up. It is just that the higher one starts, the lower the future expectations have to be.

Coming to the question on banks, we have been bullish on the corporate facing banks for a while now. We think the NPA cycle is over and before the next NPA cycle starts, we will have a few years when we should be able to get reasonably decent performance from many of the banks. However, one has to keep in mind that there will be an increase in credit growth. What we have seen today from Reliance tells us that the credit growth, at least for the frontline companies, may still be some way off as far as the domestic banks are concerned. There could be a little bit of a tempering in terms of where the numbers will be. However, I think banks will have better margins this year without question and that is one of the factors underpinning the earnings growth for the index as well.

Is IT, for at least the third quarter numbers, priced to perfection?
That is difficult to say. We do expect the numbers to be a little better than what the companies have guided for but it may not be better than what the analysts are already expecting as most analysts have upped their expectations.

Overall, this remains a very hot sector in terms of demand. Even smaller companies have reported enormously active sales pipeline and the only issue was in terms of availability of people who can actually execute on the projects and more importantly at a price where the companies continue to make some money for now. I do not think that either of those are an impossible task. We will continue to get better than expected performance from the companies in terms of their own guidance and perhaps to that extent the market will continue to remain somewhat bullish. Overall, even otherwise from a sector perspective, this is one sector where I do not think that one should see any demand issues. Consequently, one should be somewhat overweight in the sector.

What is your take on Reliance? After quite a few months of consolidation, what is it poised for next?
Reliance continues to remain a powerhouse in terms of all the various initiatives they have taken. While there is a bit of an issue in terms of their traditional business of oil and gas because of the ESG concerns, I think they have done enough to try and mitigate that and we have to see how the execution comes through.

But if they do move forward on hydrogen cells and that becomes economically viable, then obviously there will be a new leg. They are also pushing forward in terms of their retail business doing exceedingly well. Wherever there has been a trial, they have taken up almost 25% of all vendors and that is again good news. They have been also adding to the education platform.

Most of the initiatives that Reliance has been taking are things which are currently or likely to be very big over the next few years. One can choose an entry point in terms of wherever one wants to as far as the pricing goes. It should be part of the core portfolio for India.

Many believe that after realty, there are chances of an overall infrastructure revival. While the leader is L&T, smaller ones like NBCC are also perking up quite smartly along with the ancillaries. Could we see a big revival kick in?
The real estate cycle has picked up after a long time and at least on the residential side, we are seeing a reduction in inventory for many of the cities, barring a few. One thing you need to watch out for is that Hyderabad, which was one of the leaders, has not had a drop in prices for the last three years and has suddenly started to increase inventory. So it all depends on where each market is because real estate is a micro market and one has to look at each city and within the city each micro market separately.

But overall, I would imagine that with the kind of stock market we have seen, the demand for real estate will not actually go up and will remain reasonably firm. So hopefully, if the prices do not go up in terms of actual product output, one should find that the realty companies are able to liquidate their inventory and do reasonably well. That is what we have already seen for the last few quarters that should translate into the top line growth as well.

The government wants to develop property and from that perspective, NBCC will obviously benefit from government projects. The price is not particularly aggressive at this stage. So from here on, at least from the demand side, it will depend on their execution capability rather than their ability to have a pipeline.

HDFC Bank or ICICI Bank?
HDFC Bank has not done much till the last few days and has been kind of resting for a while. Overall in terms of quality, I would still go with HDFC but in terms of the delta since we are coming off an NPA cycle for ICICI Bank and that has sorted itself out over the last few years, I would imagine that at least on the upside for the near term, ICICI may actually perform better.