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No one knows real extent of the problems at a YES Bank or DHFL: Sameer Narayan

The challenge today is that nobody knows the extent of the issues in these companies.

ET Now|
Jun 20, 2019, 11.49 AM IST
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ETMarkets.com
Sameer Narayan2-1200
NBFCs saw half a decade of trailblazing growth, which essentially funded the consumption; even preponing it at times.
NBFCs saw trailblazing growth for half a decade, funding a consumption boom; even preponing it at times. And now they face a hair cut as growth visibility takes a knock, says Sameer Narayan, Independent Market Expert. Excerpts from an interaction with ETNOW.

ET Now: One side is compulsion, the second side is reality. Is the selling in Indiabulls, Yes Bank and Dewan Housing overdone?

Sameer Narayan: If you look at the exposure, the problem is quite large because the average NBFC plus HFC exposure of only the mutual funds is close to Rs 3 lakh crore. Now, that is a sizable number viewed in the larger context. It is not that everything is having an issue but we need to get confidence as to how much of it is under the cloud and what can be done in terms of recapitalising or getting it to stabilise. The challenge today is that nobody knows the extent of the issues in these companies and that is what is creating volatility and panic.

ET Now: So would you be a buyer here because it is often said that good news and good prices do not come together? Some would argue that it is the prices at which these stocks are trading. Is this an Amazon or a Flipkart sale for stock market which has come three months before Diwali?

Sameer Narayan:
Well I think that is a very good analogy but unfortunately it is not as great as it sounds.

ET Now: The Amazon sales are not great. You end up becoming compulsive buyers. You end up buying things which you do not want to buy because it is cheap.

Sameer Narayan: The NBFC problem also crops up when you look at valuations. NBFCs saw half a decade of trailblazing growth, which essentially funded the consumption; even preponing it at times.

Now, because the visibility on the growth going forward is low, people do not know how much of a hair cut to take in terms of growth. And in case, a cost of the fund goes up, what it would do to the spreads and the valuations is a risk that has not been factored in. So they might be looking like they are down 10-15% from the 52-week highs and are available at a good value, but honestly, the jury is still out on this one.

ET Now: Everybody knows on the Street, that real estate is experiencing a slowdown. Prices are not going up; people who bought houses have not really felt the wealth effect, but stock markets are telling you to ignore all economic reality and there is a mini bull run in a Godrej or a Sobha or for that matter Prestige Estates. The word bull run here is relative.

Sameer Narayan: These are the companies that are operating in specific markets and have a niche positioning. People have confidence that the projects will be delivered on time, the quality will be good, and hence even in case they are charging a bit of a premium, people are willing to take it. Earlier we had this real estate bubble of the land bank valuations which was frothy because nothing actually came out of it.

Those projects never really got off the ground. So, market is actually focussing on companies which are executing and have a track record. Hence, there are in a position to charge a premium. That is where the segmentation is as far as the investors are concerned.

ET Now: Amazon and the e-commerce companies have become the disruptive source of purchases, yet the trends in the Aditya Birla Fashions of the world are doing very well, how so?

Sameer Narayan: These are the franchises that have their own set of very faithful clients. What's happening here is -- well run businesses, cost structures are under control and the franchise is entrenched. Markets tend to like such businesses because there the predictability of revenue stream and earnings is better than others. So, say if I have to allocate money in organised retail, then which are the top two names that I will go to? Well, they are exactly the ones that you just mentioned.

ET Now: What do you like in NBFCs or you do not like anything?

Sameer Narayan: Well, as the risk starts getting addressed, the safer perceived NBFCs are likely to garner a higher share of the business which will flow out of the ones where the risk is higher. So the already big names will get to become bigger. People will then be puzzled about the eight time book going to 10 times etc. But the larger NBFCs should get a disproportionate share of the business.

ET Now: What is your take on the telcos?

Sameer Narayan: When you see Jio’s debt and the overall net debt of Reliance at the consolidated level then it tells you that the price war is closer to its end. Reliance, with about 30 crore subscribers, is okay with its market share because now the focus shifts to revenue and earnings.

Customer penetration is not a long story anywhere as far as the telecom sector is concerned.

Now, it is going to be about how much you can get from the customers who you already own. Very clearly, the Bharti story has been that they have been deleveraging, they have been ensuring that they sweat the assets so that they can get money for the right kind of capex in their core operations and that is what the market likes.

ET Now: You mentioned earlier that you are looking at possibly OMCs, metals when you were talking about that were you thinking of actually getting into some of those pockets at these beaten down prices or did you have a different thought?

Sameer Narayan: OMCs is a good trade for a falling dollar and a falling crude which probably should happen in case there is a slowdown concern. But there seems to be something strange happening. If you look at the one-year trailing return of Dow versus the gold, the gold today is outperforming. So in an era where people are scared about growth slowdown why is it that an inflation hedge is actually doing better? Could be the inflation is being under-reported in the global context. As well as when you have global supply chains which are being disrupted because of these trade wars there has to be some amount of inflation that creeps into the intermediate capital goods. I think that is where the story will play out. The dollar-crude that metric is something that is interesting and that is why OMCs will offer a great value play.
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