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Market is now getting hungry for growth: Mahantesh Sabarad

Defence in general is incrementally good, but we do not see that as moving the needle for many stocks.

ET Now|
Last Updated: Jul 12, 2019, 05.29 PM IST
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Mahantesh Sabarad, SBICAP Sec-1200
For quite some time, we have not seen growth per se in either in the earnings on the top line and any company which will be able to deliver on that front, will be taken up by the markets, irrespective where the valuations are, says Mahantesh Sabarad, Head, Retail Research, SBICAP Securities. Excerpts from the interview.

What is your first take on IndusInd Bank numbers?
It is a very positive development. Mr Sobti stressed that their capitalisation has strengthened quarter on quarter from 14.28% to 16.8% and that is good news. The second bit of good news he talked about was the 7.5 million customers of Bharat Finance being onboarded. These strengthen the business profile for IndusInd Bank as we go forward. As far as the results are concerned, there is nothing material in it to disappoint any one.

In fact, from a quarter on quarter perspective, there was some discussion about the provision coverage ratio going down. I do not have that number but let me put a perspective that in quarter four, the company took excess provisions related to IL&FS and therefore it has to be viewed from that prism.

I find it to be a strong set of results. If your income is growing at 32%, balance sheet growth is 28%. By itself, those are very strong numbers.

Do you feel this probably indicates what we may expect overall when it comes to some of the key banks this time around?
From the bank’s perspective, one should remember that we are coming off a low base both sequentially as well as year on year perspective, especially on the asset quality side. Many of the banks have also posted either losses in the past or very poor set of profit numbers and coming off that base this quarter would see a significant jump in terms of not just profits but also significant reduction in provisions and general trend towards strengthening of the balance sheet. This is coupled with the fact that some of the banks will go in for capital infusion. Post this result season, the BFSI sector should be doing really well.

ET Now: What is your view on the defence space? We do not have too many players but the likes of BEML, even L&T, Ashok Leyland have been winning orders of late. Is there some merit within these names?
Mahantesh Sabarad: I do not think defence is any significant mover for some of these businesses that you named such as Bharat Forge or an Ashok Leyland or even an L&T, because these companies drive their own set of businesses and defence is not necessarily the core business for them.

Having said that, incremental orders that they are taking about will be useful for growth ahead. As far as the government’s own defence companies which have been listed are concerned, one would prefer to look at those companies which have not just a high order backlog but steady delivery in terms of turnover growth.

Some of these companies are indeed delivering strong growth but not material enough for investors to really notice. Having said that, there is another problem with some of the government companies that the government itself is doing a lot of divestment through successive rounds of EPFs and so on. That is putting a little bit of pressure on some of these stocks.

So, defence in general is incrementally good, we do not see that as moving the needle for many of the stocks.

Would the overall rates for the 10-year Gsecs provide a support to valuations?
Yes, indeed it can because they are quite interlinked but the moot point is the market is now getting hungry for growth. For quite some time, we have not seen growth per se in either in the earnings on the top line and any company which will be able to deliver on that front, will be taken up by the markets, irrespective where the valuations are.

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