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Loans and exposure across Indiabulls, YES Bank, ADAG and DHFL appear interlinked: Hemang Jani

We have seen a systematic destruction of market cap in Indiabulls, YES Bank, ADAG and DHFL.

ET Now|
Updated: Oct 01, 2019, 01.30 PM IST
Hemang Jani-Sharekhan-1200
The entire move on strategic sale of select PSUs would rerate a large number of PSUs, particularly the ones which are fundamentally sound and which have a good amount of value, says Hemang Jani, Senior Vice President, Sharekhan. Excerpts from an interview with ETNOW.

The government wants to do strategic sale or completely exit from. SCI, Container Corporation, and BPCL. Would you be a buyer in these stocks?
Yes, I definitely think this is a big development, coming immediately after the tax cut proposals which saw the revenue target taking a knock of almost Rs 1.8 to 2 lakh crore. The market needed some kind of direction from the government on its plans to make up for the shortfall. The government has been able to come up with the privatisation plan which suggests that they are absolutely committed to this divestment and bridging that gap.

Coming to the companies which have been selected for divestment, BPCL and CONCOR are extremely strategic. SCI is too small in the overall scheme of things and also the kind of reports which are coming out, say currently the government is holding about 53% stake. They are looking to exit completely out of it and so the management control and a substantial stake would basically be sold, which is again a very big positive because of the strategic nature of BPCL.

The entire move would rerate a large number of PSUs, particularly the ones which are fundamentally sound and there is a good amount of value. This entire exercise may take some time. It is not going to happen in a hurry but the fact remains that the value or the price that the government would get, would be substantially above the current market price.

What happened with Indiabulls yesterday? What did you hear?
Clearly the investigation into the financial irregularities also the fact that this Lakshmi Vilas Bank merger would be on the back-burner because of the investigation into their operations. That means this entire saga will go on for a while and more importantly, there is definitely a sense that there is interlinkage in terms of the loans and the exposure across Indiabulls, Yes Bank, ADAG and DHFL.

We have seen a systematic destruction in the market cap of these names. We are probably at the fag-end of this entire saga and it does not make sense to try to buy into any of these names because there are serious question marks on what is really going to happen, what kind of exposure each one has and how much NPLs we will end up with finally.
The larger market or the banks in the financial space are not going to be affected by a serious destruction of the market cap of companies like Indiabulls and Yes Bank and so on.

Why has State Bank of India suddenly fallen off the cliff? Is there a case to buy SBI right now after the recent fall?
As a result of the carnage that we have seen across the NBFCs, in some way or the other, some of these NPLs would find their way back to the SBI books. That looks to be one of the concerns that people have. There is also the fact that the entire benchmarking portfolio of the housing finance companies could see some pressure on the margins for some of the HFCs and banks which have a higher component of the housing finance portfolio.

The fact is the 10-year bond yields have gone up by about 40 to 50 bps and typically the PSU banks tend to underperform in this kind of a scenario. A combination of these two-three factors are leading to a weakness in State Bank of India and some of the PSU banks. However, we feel that at some point, once these things stabilise because overall market outlook is much better and a lot of provisioning and cleaning of portfolio has already been done by State Bank of India, may be another 5% to 10% cut would definitely present a good buying opportunity.

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