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Expect NIMs for banks to expand, cyclical uptick in cement cos: Mahantesh Sabarad, SBICAP Securities

Top-end consumption companies to fare better versus the middle and the lower end names.

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Last Updated: Jan 10, 2020, 04.26 PM IST
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Mahantesh Sabarad, SBICAP Sec-1200
GDP deceleration and a weak festival quarter mean most of the consumption companies have to be a little cautious in building their pipeline of inventories in the coming quarters. A weaker volume growth is what is forecast from most of them, says Mahantesh Sabarad, Head, retail research, SBICAP Securities. Excerpts from an interview with ETNOW.

What is your expectation from tech companies this time?
Generally speaking, the tech companies would end the quarter on a weaker note since it is a seasonally weak quarter. But having said that, from year-on-year perspective, we expect that most of the IT companies would be able to either upgrade their guidance in terms of the revenue growth for the following year or they will be able to at least give a guidance or a direction for better margins going ahead.

This would mean most of the IT companies should do better in the upcoming years and given that you have favourable tailwinds coming from the rupee depreciation, the stock prices also should be able to do better relative to the market.

What is the expectation when it comes to the metals basket? Next week we have got HCL Tech. There is IndusInd Bank as well as Wipro. Anything that you are expecting in particular from IndusInd?
For the banking sector as a whole and this should also be the case for IndusInd, we expect net interest margins (NIMs) to be expanding. From a topline perspective, most of the banks will be quite better off. What will be important to notice is how the NPA trends will be as different banks will have different trends.

IndusInd has had a problem but fortunately what the bank has done in the past is that it has provided for NPA contingencies. So from provision coverage ratio perspective, which stands a little pretty so far but as the quarter goes by and results come in, if there are any surprises, then that would mean a little bad news.

But having said that, most of the banks are in a safer territory, safer zone as far as NPAs are concerned. The trend apparently is improving bolstered by the growth that they see on the personal loan side. IndusInd Bank should be relatively better off given that they have made contingencies provisions in the past.

Cement has been garnering a lot of eyeballs. Of late in terms of stocks, they have been buzzing and holding out as a pack very well. What is the outlook when it comes to the pricing environment and earnings for cement?
There was a un uptick in prices as we began the new year for cement and that meant that most of the cement companies started the year and the last quarter of the fiscal year on a better note. Having said that, from a demand perspective, throughout last calendar year, we saw the demand growth rate decelerating.

Now with a low base effect setting in, we should be seeing the reverse of that. In short, it is going to be a little cyclical uptrend from cement companies when it comes to their production and despatches. Plus on the margin front, the environment is a little benign between the price increases on cement that they have taken versus the cost increases that they are seeing.

That said, most of the cement companies have not performed well from a stock price perspective and there are opportunities to be had from a relative valuation perspective in most of the cement companies. Interest will start building up in some of the cement companies soon.

What would want to do with some of those consumption majors right now? Book some profits, perhaps remain invested even though we are not seeing that spurt in growth that was anticipated?
You are right, the spurt in growth is not really happening. GDP deceleration and a weak festival quarter mean most of the consumption companies have to be a little cautious in building their pipeline of inventories in the coming quarters. A weaker volume growth is what is forecast from most of them but herein you have a distinct polarisation between the top-end consumption companies versus the middle and the lower end names.

This polarisation is being seen not only in terms of just the volume growth numbers, it is also being reflected in the way stock prices are moving. The only reason one can remain upbeat about some of these consumption names is when you have personal tax rates being cut in the upcoming Union Budget. Probably some share of that will go into consumption, particularly on the premium side products. We should be looking at the companies who have higher end premium products lined up within their portfolio. That is what the polarisation has happened thus far and will continue to happen going forward.

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