Beyond SBI and BOB, don't see value in PSU banks: Nischal Maheshwari

Nischal Maheshwari, CEO- Institutional Equities, Centrum Broking, continues to like IT large caps because there is a huge valuation gap between the large and midcaps.

Do you think that the correction is a bump along the way and come April things are going to stabilise?
The correction was expected. Basically the market was waiting for some reason to correct. From March to March, the market was up almost 100%. These kinds of corrections will come along. I am seeing one of them and this is not the last one which we have seen. Obviously things have changed since the beginning of January. Covid conditions across the world have deteriorated and the market is factoring in that. I am very hopeful that next year is going to be very good for us both in terms of earnings as well as on the market side which is the equity pricing.

Are you confident that we will see a recovery in the flows to India? What is the outlook on the overall liquidity situation?
We may not see the same kind of liquidity which we were seeing last year, but obviously those were at different levels. On an average, the Nifty was around 10,000 then and we are at around 14,000 now. So definitely more flows will come in. Some amount of profit taking is happening at the moment and we have seen some outflows over the last one month.

It may not be the same amount but we will get good flows. It may not be equivalent to last year’s but we will continue to get good flows next year also.

What is your outlook on autos?
We have been neutral on autos for the last one quarter. We believe that the auto companies will find it difficult to pass on the rising cost of raw materials by taking price hikes. Hero has already announced an average Rs 2,500 hike in vehicle prices. Maruti has also taken an increase but they will still not be able to push through all the cost increases which they are facing. So there would be some dip in margins next year and it may impact the demand also. So that worries us. Next year our preference is for the CV cycle. That is our top pick among the three auto sectors. So CV, tractors, cars and two-wheelers is the order of preference which we have now and we continue to believe that economic growth will revive the CV cycle strongly both in terms of construction as well as in transportation.

Is there sense in looking beyond SBI in PSU space? Would you look at any of the smaller PSBs?
We have historically avoided public sector banks and we have not done much work beyond SBI and Bank of Baroda. I continue to believe that those are the two banks one should look at and maybe a PNB which is now getting consolidated with OBC. But at the moment, I do not see much value getting created beyond Bank of Baroda and SBI.

What is the view on PSUs other than the banks?
I would put that PSUs into two baskets; one is the disinvestment basket. There is BPCL, Air India, BEML and also Concor. Also LIC will go public this year. I think there is good value out there in these stocks. I am very sure that it will not be difficult to find buyers at least for BEML, BPCL and Concor. Air India will happen as we go along. I find value in all the three listed plays.

The second basket consists of the defence space. As we go big on the Atmanirbhar thought process, we are seeing that these companies are not only producing for India but also making a lot of headway for exports. Defence is going to be one area which the government is working on very strongly.

There are a lot of companies which are of real value out there -- BEL, HAL.

Where are you finding comfort within IT to buy afresh in midcap as well as largecaps?
We continue to like the large caps because there is a huge valuation gap between the large and midcaps and specially Tech Mahindra and Wipro. All of them are at almost 25-30% discount to some of the midcap stocks like LTTI, LTTES. The largecaps continue to be our favourites out there.