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Want to Budget-proof investment? Go for insurance stocks: Sudip Bandyopadhyay, Inditrade Capital

Govt needs to figure out sources of revenue or allow a higher fiscal deficit.

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Last Updated: Jan 24, 2020, 09.15 PM IST
Sudip Bandyopadhyay, Inditrade Capital-1200
The trend is starting to become increasingly optimistic as we count down to the Budget. Given that we are in the thick of earnings right now, do you feel we are getting ahead of ourselves?
There is definitely a niggling bit of worry. We understand the fiscal constraints under which the government will have to prepare the Budget. The revenues have not been on the expected lines. So, they need to figure out sources of revenue or let a higher fiscal deficit arise which probably will not be really palatable for the global investors who insist on fiscal discipline.

Having said that, overall, a whole lot of expectations are being built around this Budget. There are different sectors with different expectations. But the fact is, this can be a watershed Budget. The growth is at a significantly lower level. There is a genuine need for kickstarting growth and stimulating investment both domestic as well as foreign. So, there are lots of expectations. But the corporate results have not been anything great, neither was it expected to be great. We will have to be really careful about what we are planning to do in the interim -- between now and the Budget announcement. Definitely cautious is the word which I will put across to the investors.

Purely because of the kind of positioning on ICICI Bank by the markets, do you think the scope for an up move in the stock and at the same a disappointment is much higher?
I do not think there is disappointment as far as ICICI Bank is concerned. They have the Essar realisation in their kitty during the last quarter so even if there are little bit of incremental slippages, Essar realisation should cover that. So, I do not expect any disappointment. The asset quality is expected to remain stable if not improved as far as loan growth is concerned. We expect a decent loan growth in ICICI Bank. I do not think it should be a disappointment but yes of course, after the results there may be some profit booking and some correction. That should be an opportunity of acquiring the stock.

From a six months to one year time horizon, we are very positive on ICICI Bank. You also touched upon the stake dilution in subsidiaries. There definitely will be some announcement on that and that will again help the bank. All the subsidiaries of the bank have been performing exceedingly well and at the consolidated level, I think the performance looks even better.

IT has been a mixed bag with HCL and Infy being positive but midcap IT has also been catching our interest in the last few sessions. We have been seeing some traction there. What would be your strategy on IT right now?
IT does look decent. We love the Infosys numbers and we believe that the valuation gap between Infy and TCS will narrow significantly from here on. The way the entire IT pack is behaving, very clearly the winners and losers have been separated.

As far as IT midcaps are concerned, it is pretty much the same story. Zensar numbers were a disappointment. L&T Infotech numbers were pretty encouraging. There are issues on the top line growth and if the company is able to achieve a decent top line growth with an adequate number of deal wins, those companies are showing a good performance. They are building for the future as well. I like L&T Infotech in midcap IT. We also like Infosys and MindTree in the midcap side. Persistent Systems also looks good. Overall, IT should be a defensive play. If you have Rs 100 to invest, Rs 20-30 can be put in IT in a combination of large cap and midcap stocks -- something in Infosys, HCL and the balance in the midcap IT stocks.

Wouldn’t the recent news that Sebi is now going to probe further in the Infosys whistleblower complaints put the spanner in the works? Or do you think that is an non-issue altogether?
We have been through this issue again and again. There was an independent auditors report which was discussed in detail at the last Infy board meeting. Nilekani clarified and clean chit was given to the CEO and the CFO. SEBI as a matter of process needs to do an independent investigation. They probably cannot structurally rely on a third party report which was commissioned not by SEBI and so they need to do their investigation, I do not think they need to be too much into this.

The pre-budget trades are already getting into place. If you were to recommend someone to trade ahead of the Budget, is it sensible given how high the hopes are going into the Budget this time?
One needs to be careful this time as the hopes are really high. Market is also really high. With a combination of these two factors, one needs to be cautious. One of the sectors which I look at and am confident about because even if the Budget does not give anything in the long run, investors will make a lot of money in the life insurance space. In the life insurance space, ICICI Prudential looks excellent. We have seen the results. There are expectations of separate a block being created for investment into insurance products. If that happens, it will be a great story for insurance companies like ICICI Prudential. But even if that does not happen, on its own, if an investor has one year plus time horizon, they can expect 20-25% return on at current levels. So entry into life insurance companies is definitely recommended. ICICI Pru is the top pick but one can look at SBI Life and HDFC Life as well.

How would you look at the pharma pack? Dr Reddy will declare numbers on Monday. How would you look at the pharma pack?
Dr Reddy’s has been my favourite for some time. They have done many things right including their entry into China. They have established a toehold in China which is one of the largest pharmaceutical markets. Otherwise also, considering their exposure in differentiated geographies rather than depending completely on the US markets, they have done pretty well. At current levels, Dr Reddy can definitely be bought.

In the entire pharma space, we have been bullish on companies with significant business in India. If there is significant growth happening in Indian pharmaceutical industry, companies like Torrent Pharma and Natco Pharma can definitely be looked at.

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