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Mayuresh Joshi on why you should hold on to Coal India stocks

Talking to ET Now, Mayuresh Joshi , Fund Manager, Angel Broking , says they have a clear “hold”on Coal India but they also like is Vedanta out of the larger metals pack. As for investment in PSU banks, it has to be very long term and one has to buy these stocks on dips in small quantities because the markets could see some knee-jerk reaction if yields keep on moving up both in US and the Indian markets.

Edited excerpts:
What to do with Coal India, now that the cabinet has approved the methodology for auctioning of coal mines of commercial mining? Would this mean that there would not be as much monopoly that Coal India shared earlier and what would it mean for some of the private guys?
Over the medium to long term, the benefits that Coal India was deriving over the past so many years, with private commercial mining coming through, is going to create a huge amount of competition.

However, the kind of pricing that Coal India does across various grades of coal and the concerns that a lot of analysts on the Street had with slippages from auction realisations, the Coal India numbers are looking far more steady and even if one accounts for the evacuation charges that Coal India is now going to charge along with the increase in non-coking coal prices which will offset the wage increase of around Rs 5,600-odd-crore.

From an earnings perspective, any 8-9% volume growth cannot be ruled out. With the mines that it is operating, there is every possibility there can be further rises in prices across grades of coal. I would not be overly perturbed with commercial mining coming through. A lot of private players also had evinced keen interest. Players like Vedanta had gone on record saying that they would be probably looking at reserves related to coal or bauxite to probably support their operations. The monopolistic regime that Coal India had, starts getting dismantled but I think it is not too negative for Coal India over the medium to long term. As evacuation increases, as the transmission lines and the railway lines start coming through, the volume growth for Coal India should also be substantial. So, a clear hold on Coal India but we also like is Vedanta out of the larger metals pack.

Is it time to be a contra buyer in PSBs? I am getting a sense from some decent HNI investors that they are chancing their arm with PNB or for that matter with BOB now.
It is a matter of perspective in terms of your holding period henceforth. The kind of numbers that they have probably reported, the provisioning will still remain on elevated levels for a lot of these PSBs. They have already indicated in Q3 that Q4 provisioning is going to be on the elevated side and what you witnessed over the past few weeks with the PNB saga is clearly going to continue in terms of aging-related provisioning, NCLT related provisioning and all the spaces that are probably coming through.

Having said that, State Bank of India among the PSB pack is something that we have continued to like in the past, though the numbers were very disappointing in terms of fresh slippages coming at all-time high levels.

You are probably also looking at elevated credit costs. My own sense in terms of retail credit picking up, their branch network and the kind of peaking in terms of both asset-quality reported as the management was indicating. It should be a testimony that SBI stands out in terms of advances growth, their own branch network as well as valuations. Any decline and State Bank probably remains one of our favourite picks out of the PSU pack.

Would you say the worst is now behind us when it comes to PSBs? Or do you think with Nirav Modi, Rotomac Pen skeletons tumbling out of the cupboard, we would continue to see weakness and capital aversion from PSBs?
There are three very important aspects here. The first obviously is going to be all these elevated provisioning. Again, the aging related provisioning, the NCLT related provisioning and new provisioning related to power/telecom sectors is going to have an elevated kind of stress in terms of credit costs and elevated provisioning playing truant on their balance sheets.

The second angle is the recapitalisation which has probably come through for a lot of these banks. You are going to see a lot of these issues being offset against provisioning which was desired but the growth capital is clearly missing in terms of embarking on retail advances growth.

The third angle becomes a non-interest income component. With yields spiking up significantly, that portion of the book is going to get hit. The managements have given forth that the Q4 provisioning is going to be elevated and that can continue for a quarter or two.

Weak numbers can be expected for the next quarter for whole host of PSU banks but you have to be very selective here. Again, the view – A) has to be very-very long term and; B)you need to be probably investing in these stocks in small proportions on declines because the markets in our opinion again will see some amount of a knee-jerk reaction if yields keep on moving up both in US and the Indian markets.

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