YES Bank could be an outperformer over the next few quarters :Dipan Mehta

"So you need to focus on companies which are in verticals where there is a lesser chance of spending cuts. It could be automobiles, design led, technology stocks and I think that is where the opportunities are in the IT sector," says Dipan Mehta, Director, Elixir Equities.


There was IT that performed quite well. Are you being very selective within space after we are seeing this come back in IT?
Yes, absolutely I think you have to be extremely selective in IT and certain verticals like BFSI, retail are certainly going to be impacted and you could see cuts in discretionary spending over there.

So you need to focus on companies which are in verticals where there is a lesser chance of spending cuts. It could be automobiles, design led, technology stocks and I think that is where the opportunities are in the IT sector.


At the same time companies which are doing slightly differentiated service offerings also could certainly be preferred. So keeping that in mind I would go with the midcap IT stocks. I think because of their size and their position they may be able to maintain decent growth rates and therefore I think the Street is giving them slightly higher PE multiples.


I think those PE multiples are justified and the next three-four years looks very exciting for few midcap IT companies. We like companies like Tata Elxsi, Persistent Systems and KPIT and then there are very aggressive companies which are growing ahead of the market and the peer group companies like Coforge and now the merged LTIM as well.

Once we see slight stabilisation in the global economy I think the IT industry will come back pretty well and these midcap IT companies I think should be the growth drivers and the leaders within the IT pack.

Two stocks turned out to be quite disappointing. Paytm after its buyback and even Yes Bank after its fundraise even though the stock is floating around a 52-week high. What are your views on Yes Bank as one would have thought this fundraising news would push the stock even further?
I would say that this is a phenomenal example of how the RBI and the banking sector got together and saved a bank which, if it had gone into a default zone, would have completely created a ripple effect within the industry and caused a lot of angst amongst depositors as well as shareholders. Instead of that they got a strategic investor in the form of SBI and whatever the scheme of survival arrangement which the RBI has made up for Yes Bank that has played out really well and now I think this fundraising is a final step in making sure that Yes Bank is completely on its own and is able to now grow as any other bank.

I think it is a golden moment and a golden example for the banking industry and I think you should laud that. At the same time I think a lot of the immediate positives have been captured into Yes Bank but I think that fresh investment can certainly be considered. I think once they have transferred a lot of their bad debts to the asset reconstruction company their NPA ratios also will look very attractive and with the fresh funds coming in they will certainly have growth capital as well.

Yes Bank has been well managed, it has got a good technology platform and very good network of banks and more or less all the CASA ratios are also pretty much in order. So it could be an outperformer over the next few quarters or years as well and its low price is certainly interesting to a lot of traders over there. So very positive on Yes Bank per se.


With regards to Paytm let us see how the numbers come through quarter after quarter. I think there was a buzz around the buyback but that was a bit of a dampener so let us see how it plays out.


It is a difficult one to call where Indiabulls Finance is headed but given that there is a change and the entire lending cycle is looking strong and they have a very reasonable brand with PE backing could this be the dark horse for 2023 like Yes Bank of 2022?
Within the NBFCs there have been many laggards and many companies which have got into NPA related problems when the IL&FS crisis broke out. But now I think they are more or less complete with their provisions. They are well capitalised and now they are poised to look at entering a new growth phase. But it is just that the market and investors still have a perception issue with such banks and NBFCs which is why they are quoting at such low PE multiples. I think that if companies like Indiabulls Housing Finance and other companies which got into a problem situation give them three-four quarters of decent earnings without any disappointment you will see that price to book, price to earnings multiple also gradually move up.

So I started by saying that there are many trading opportunities in the banking sector but when the NPA cycle turns I do not know how these banks and NBFCs will start to perform. Even then whether they have learned the lessons of the last NPA cycle and have made corrective changes in terms of the risk management that needs to be seen.


So I would say that PSU banks, Indiabulls Housing Finance and some of the other NBFCs are all trading bets at this point of time and certainly you could put some money over there but for a three to five year type of a horizon you have to go with the large cap private sector banks.

Is IDBI Bank in your book more like a toss of a coin if it happens it is a jackpot, if it does not get divested you will be stuck with the mediocre franchise?
I think IDBI Bank is at a very interesting point at this level and I am pretty certain that it will get a very good response and once it is privatised in true sense you will see maintenance or even improvement in terms of growth rates because that is what a new management will bring in.

It is just that it is a bit expensive at this point of time compared to its peer group and still there is no clarity on how the new ownership or the new management structures will take place. I would say that at best one should keep it as a hold, if you are invested in it remain invested but from a fresh investment perspective I think there are better alternatives which are, I would say cheaper in terms of multiples.

The other space which has been in news of late is the entire capex theme and the derivatives could be banks, could be railways, defence, many you know sectors and segments do get encompassed within this entire larger capex umbrella? We wanted to understand how you think this theme can be best invested in?
I think one is you have to go for the leader that is Larsen & Toubro. I think it is on a very strong footing and it has got great earnings visibility because of its bulging order book position and now with the Middle East also doing well that is another key market for them. We can expect more order flows to come through over there and that could provide diversification in terms of order book and revenues and there is great value in subsidiaries as well.


So that has to be like a must own stock in your portfolio. Apart from that selectively you could look at a lot of other capex companies and a few interesting companies which come to mind are ITD Cementation, Praj Industries and VA Tech Wabag.

I think down the line you could look for specialised players within the engineering space, and the capital goods space. This is one sector I think which should do very well and after many years of underperformance we are seeing a nice uptick a nice upcycle within the capex play and that certainly is an investment theme which investors should bet on.

Stock ideas for 2023 from you?
We are very positive on retail companies per se especially apparel retail companies. But now we have a whole host of specialty retail companies. I will give you the names they are not necessary recommendations companies like Vedant Fashions, Manyavar. Then there is Active Campus Wear, Metro Brands, there is Ethos. I think all of these companies are in a nice growth zone and one needs to analyse them and see what their prospects are. They are all expensive at this point of time but they could be fantastic value creators as we are seeing in the case of Titan or Trent or Avenue Supermarkets. So that is one segment we are very excited about and that is top of the list in terms of focussed stocks.



(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)