What could be interesting in this market falls could be insurance. Their numbers were not bad. I looked at HDFC Life numbers, decent. Three-four years, like you said, Kotak Mahindra Bank insurance stocks have also done nothing, nobody likes them, nobody owns them, and genuinely I see that there is a turf of growth which seems to be getting made.
Sandip Sabharwal: Yes, I would agree like especially for hdfc Life the expectations were low, they reported decent numbers, stock ran up, now it has consolidated a bit. So, I think that could potentially be one stock from the insurance sector which could do well. Similarly, ICICI Lombard number on general insurance were pretty decent. Icici Pru on life insurance and sbi Life were muted not as great. But overall that the industry has gone through a long phase of consolidation and I would agree that there could be potential opportunities. So, from the results which have come out and outlook HDFC Life stood out among all the companies which have reported till now.
Let us one works with some assumptions here that government spending will normalise, nothing negative comes or nothing majorly negative comes from the US market. Sooner than later Reserve Bank of India will be forced to cut rates. Economy will start normalising. So, then what becomes a go-to sector? Should one go back to cyclicals, government dominated themes or should one go back to consumption which is where also there could be a turn because both the things could turn for better, government/capex or consumption/rural?
Sandip Sabharwal: See, consumption should turn around. So, consumption stocks which are beaten down, surely any investor or at least a low risk investor who is happy with the 15% kind of return, most of the consumer stocks from current levels should be able to deliver that because let us say this festival season given that the base of the last two years is so low we could suddenly be looking at many of these companies actually growing very well.
And once the good numbers start coming in because these companies do not raise equity, their liquidity is low, the moves tend to be fast at that time. So, whoever has to accumulate these are good times you accumulate, you wait, and eventually you get returns. Government spending behaviour has been very intriguing.
The government knows that there is a slowdown, but still the government capex, government spending has not picked up. Now what is leading to that, why this stagnation is there, and what is their thought process it will become clear in a week when the budget comes in. Ideally logically we should expect government spending to pick up, allocations towards capital expenditure should pick up and should be much higher next year than this year, but we need the action out there to come through but again because of lower government spending, lower project announcements, lower order wins for many of the companies on the infra, capital expenditure side, many of these stocks have also corrected. So, potentially there could be an opportunity in many of them.
But what is the commentary looking like from Unilever because it still seems that they are in that transitioning phase, they are still talking about a slowdown and at the same time they are going and acquiring and enlarging their premium portfolio, at least in the bpc segment.
Sandip Sabharwal: They should be doing that, it has been a company which has not been adapting to change, so if they adapt to change, they get into segments which could potentially go faster that could add to volume growth. Now, the price of acquisition, etc, is something which can be debated, but then the move is a right move. So, HUL post result again it has corrected so around 2200 even HUL would factor in most negatives and from there the peak of last year itself if you see was 3200, 3300.
So even if the stock goes to that level not this year, even in two years, then also from a relatively safe fmcg company on a cagr basis two-year returns can be very strong.
So, that is how I tend to look at many of these consumer names that can they go back to the same level which they were at last year’s peak over the next two years, 24 months, and then what is the cagr. If it is 15-20%, it is really strong.
Let us look at consumption, I can divide it into plenty of pockets now. One is urban consumption where I would say it could be Zomato, it could be Swiggy, it could be to some extent qsr companies. Then, there is typical rural consumption which we all know is represented by Dabur, Nestle, and hul or Godrej. And now then there is this new gen consumption which in a sense is represented by Zomato and Swiggy. What within consumption will turn?
Sandip Sabharwal: All should turn. QSR like you mentioned is an interesting space. It has gone through almost three years of slowdown and that is where we could actually potentially start seeing green shoots especially if the food inflation also stabilises and there the stocks have actually done nothing for three years, in fact many of those stocks are down, so that could be a contrarian space to be in.
Other than that, for Zomato and Swiggy, the issues are more about the strategy, like the food delivery, etc, or the quick commerce will grow, but the amount of money especially Zomato is putting behind quick commerce which could be low ROE and lower return than a food delivery business, more capex is going towards low return business and that is the bigger concern out there.
What is the likelihood that some of these urban consumption plays may not come back to the frenzied fancied status that they earlier enjoyed, case in point being a Trent or as a Zomato for that matter, and are you now then betting big on some of those bottom-up opportunities like you just mentioned beaten down FMCG names or for that matter even QSR?
Sandip Sabharwal: So, some of these companies due to their internal strategies of where they are investing have their issues like Zomato. Trent is more about a valuation correction rather than there being anything wrong with the strategy of the company.
So analysts and investors went overboard in the kind of valuation given like 150 PE and all, not sustainable and when the stock is moving up no one realises that it is not sustainable, but then when it actually happens, then people start talking about valuation.
So, we have seen Trent correct from 8300 odd to 5700. So, now where it will bottom, can it bottom around here or is there a further downside will depend on how the results come out because to sustain even 70-80 PE you need very strong earning deliveries, that is something we need to see, but overall what the company is doing as a strategy is very good and the company will do very well, stock price move up ahead, then they adjust and in the adjustment process they will give more opportunities to buy I would say.
So, where is it that you would add a fresh on a Zomato and a Trent, any levels that you have marked out?
Sandip Sabharwal: So, Zomato not right now, we will see how their strategy of investing so much or behind quick commerce pans out because it is a very competitive sector.
Trent let us watch out. So, after 35-40% correction, typically such stocks will start bottoming out at some stage, so we will watch out and take a call and let the results come out then we will have a better perspective.
