Pashupati Advani on what to do with HDFC twins, Mannapuram Finance & tyre stocks

Pashupati Advani, Founder, Global Foray, says tyres is a new market as well as a replacement market and the MRF is not actively traded. It is not very liquid but it will be nice if it hits six digits because it will be the first talk to ever do so. That is probably a reason for the MRF promoters to have a party if nothing else. But, while obviously there is demand for tyres, there is a demand for vehicles which had been crunched because of lack of chips.

Let us start with the HDFC twins. Yes, there is that MSCI news flow coming in, which might impact the inflows and outflows from the FIIs but structurally speaking, what is your take regarding HDFC twins?

As we get closer and closer to the merger, obviously the combination of the two will be more than 10% of the index. That is something that everybody is forgetting. A lot of funds except for pure index funds but a lot of regular largecap funds are constrained by the fact that no single stock should have more than 10% in the index. And if you add the two together, it is going to be like 13 or 14%. So, all of a sudden, we are going to see a lot of stock in the market so that nobody is factored in.

Overall, once that stock disappears and gets into strong hands, the stocks are doing fine. But again, there is the overhang from the US banking sector generally and I think that is flowing over and giving contagion to all markets. That is my thought on the twins and I own them, by the way.

Do you also own Mannapuram Finance because this stock has seen a sharp decline and also Federal Bank, which managed to miss the expectations by a whole lot, when it comes to the NII figure?
I am actually not very comfortable with the sector at all because a lot of the these banks, not so much the HDFC, but the smaller banks have given money to fintech companies and fintech companies have been giving loans based on less due diligence than probably they need to do and sort of Aadhaar based loans.

If the banks have given loans in white goods, they are probably going to have difficulty in recovering. So even the large companies are quietly writing off. The ones that cannot afford to write off are holding them and then defaulting back to the banks. So the smaller banks are definitely going to be affected because they have gone into that sector. I do not know what is going on in Mannapuram unless they have had another gold robbery because they, I believe, were just doing gold financing and gold at Rs 62,000 or 61,000 for 10 grams. There should not be any worry of default risk there but I do not know what is going on and I do not own it.

What is your take on tyre stocks? Do you believe the expectation of a pullback in demand as well as expansion of margin is here to stay?
Tyres is a new market as well as a replacement market and the MRF is not actively traded. It is not very liquid but it will be nice if it hits six digits because I guess it will be the first talk to ever do so. That is probably a reason for the MRF promoters to have a party if nothing else. But, obviously there is demand for tyres. There is a demand for vehicles which had been crunched because of lack of chips.

The chip issue seems to be sorted and now there are more vehicles. All of them are giving good forecasts to produce and the replacement market is very strong as well. It is all good for them.

What is your take on the entire consumer durable space because the numbers from Blue Star looked impressive but Symphony disappointed with performance?
Consumer durables are going to have a little bit of a pause simply because people are looking at the real cost of money and FD rates have gone up and they have to pay a lot higher EMIs for the same item. Now, whether that amount is paid by the manufacturer or the purchaser remains to be seen but the purchaser is used to 0%. Now the question is, is the seller going to actually bear that cost and if yes, that is going to eat into their margins.

So there is going to be a little bit of pause while they get the public to come in and say, okay we will pay 2% or 3% or 4% interest rate and then these guys are getting money at say, 8-9% so they are able to make the gap the way it was. I think that is the reason we are seeing some slowdown in that.

What about railway stocks? These stocks have been on a tear. Do they make for a good fundamental buy or are they just trading favourites?
RVNL has signed a very interesting contract and it is basically an asset light company that subcontracts everything. But they have got this huge contract to make new trains. They bid for and got the huge contract. It is about Rs 58,000 crore over 25-30 years. They are definitely going to be a player and they have already got the party in place that is going to make these things. It is all good. So they are making profit and that is probably the reason why this stock has gone up because people are doing the back calculation and saying they seem to be making a lot of money out of this, Let us see what happens but again, if the contract gets cancelled, then what? But I do not think it's going to get cancelled.