Sidharth Khemka, MOSL, shares his views on the corporate bank, the metals space and also has a few stock recommendations to dispense. If you are looking to revamp your portfolio, then this might help. Take a look at the edited excerpts from his interview with ET Now:
ET Now: Just about everyone is now suddenly bullish on corporate banks, like they were with the NBFCs. Now there is merit in buying corporate banks but do you think the trade is getting very crowded in short term?
Siddhartha Khemka: A lot of guys on the Street are positive on the corporate banks and rightly so because the asset quality is now really bottoming out. Also, the numbers of ICICI Bank, Axis Bank, as well as SBI, show that the slippages have now come off.
From here on, the credit cost should come down which will pave the way for the earnings recovery over the next two-three years.
But in the interim, some of the stocks like ICICI, Axis, and SBI has moved and it is likely that this upmove could be on account of the interest in the sector.
But it is difficult to say whether the consensus would play or an issue like NBFC could come.
Nonetheless, we remain positive on this space for quite some time and the next two-three years could be in favour of corporate banks.
The call right now is not to exit NBFCs completely, but the preferred bet here would be on the corporate banks.
ET Now: Do you think now is the time to increase risks? And if this is the case, then which stocks are you betting on?
Siddhartha Khemka: Yes, it is the time to increase risk on portfolios on the sectoral front. Capital goods is a sector where we would like to increase weightage going into 2019.
We generally see the order book drying up just before the elections. However, this time a lot of companies are sitting on a pretty good order book and the execution has picked up which is helping the P&L growth this year.
Once we are over with the election, order book should start flowing up because of the bunching up of orders which would have not been placed just before the elections. This would then drive the sector.
We are seeing a recovery in the private capex cycle and this should improve going into 2019.
The preferred stocks especially in the capital goods sector are L&T, Cummins and Therma.
ET Now: Do you think metals as a theme it is still finding favour? What is your take on the largecap trio – Tata Steel, Vedanta and Hindalco – given the momentum there has been very strong over the last two years?
Siddhartha Khemka: Metals is a cyclical sector and we are well into the cycle since the last two to three years now. I am guessing that we are somewhere closer to the peak of the cycle. How long will the cycle last is very difficult to say. Right now the quarterly numbers that are coming for the metal pack have been very robust.
In the second quarter, the overall metal pack witnessed a profit growth of 70% on YoY basis. So, that could keep these stocks attractive and at higher levels.
However, somewhere in 2019, we could see some pressure coming back as the sector is a bit cautious at these levels.
One may not add to the portfolio in metal space and adopt a cautious, wait and watch kind of a view and maybe look to book profits at higher levels.
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