Mehta also says there could be nice pockets of outperformance within the banking space. A company like Bandhan Bank came with a very good set of pre-quarter releases, as also IDFC First Bank – both companies in which Mehta and his clients are invested in.
Liquidity is back, and markets can easily digest Rs 1,000-1,500 crore.
Dipan Mehta: But in your calculation, you have not accounted for the new paper which is coming in; QIPs, IPOs are happening, and now the government wants to do a secondary market sale. You have to account for the fact that there is a lot of paper coming in. Although FIIs selling may have come down a little bit, but then there is fresh paper coming in, promoter selling also remains pretty high. These things also need to be accounted for.
Liquidity is a very funny thing to analyse. It is not like earnings or PE multiples, there is no direct science, there is no precedence and in a country like India, which is so complicated, one really cannot understand how much money is left to invest. So, till the sentiment remains high, till people’s intention to invest in equity directly or through mutual funds remains high, till the excitement around stocks remains high, I do not think that we can see a serious correction. However, a sideways movement is possible.
But keep an eye out, when investors start to feel that no, this is not going to be a great return story for them and when the sentiment at the retail level starts to turn, you may have a problem at your hand. We are in uncharted territories. I have been watching markets for 30-40 years, but this kind of liquidity is coming in from tier II, tier III, with so many SIPs opening up, so many Demat accounts opening up, mutual funds taking in so much fresh funds coming in. This is completely new and one does not really know how this will actually end.
What is the outlook on PVR-Inox? They posted a loss of about Rs 12 odd crore. But brokerages seem to suggest that the next quarter will look sequentially stronger. We have got a healthy movie pipeline as well. Should investors still pin hopes on PVR-Inox or has the OTT competition really roughed things up?
Dipan Mehta: I will go with the latter. The OTT competition has completely damaged the business model of PVR. I do not remember the last time I went to see a movie as well. And when I see around, the younger generation is also not going to the theatres and it is going to be a very challenging business and it is like a vicious cycle because theatrical revenues are not looking up. The big banner film production companies are avoiding large, big budget films which people go to the theatres to watch. So, it is a vicious cycle.
The entertainment habits have changed. There is more and more OTT watching on your mobile phone or on your tablet. I do not think that PVR-Inox is going to be sustainable at these levels. They may start downsizing soon, who knows? So, I am completely avoiding PVR-Inox at this point of time. You may have a good quarter, no doubt because of two-three good releases coming together. But there is a big question mark on three-year, five-year and, ten-year trajectory.In your portfolio, what would you say is the classic turnaround or a classic market share theme? You buy a stock for three to five years, companies which are at an inflection point in terms of either operating leverage or market share gain or some technology breakout. What fits in this Dipan Mehta criteria?
Dipan Mehta: Right now, a lot of stories have been pretty well discovered and there is nothing which you feel is available at reasonable valuation, where there could be a breakout story or significantly higher revenue going forward which have not been captured in the market. So, existing holdings are just there the way they are, I was quite pleased with Tata Elxsi’s numbers. And once they have sorted out the slowdown in the healthcare side, where they have got some new contracts, I am pretty certain the overall growth rates will improve and will go back to that mid-teens type of top line, bottom line. It is expensive, but at least there is some amount of growth coming in and that is important for me. Having said that, as a measure of disclosure, we and our clients are invested. Also, I am disappointed with Bajaj Finance, the stock price, not the actual performance which is coming through. So, the PE multiple over there, the price to book keeps on getting narrower and keeps on shrinking.
At some point of time, we expect a turnaround over there and strategically and tactically, one needs to get overweight on the banks, although we already are quite overweight, but in portfolios where banks are not adequately weighted, like beyond 20-25% in banks and NBFC, they should look at getting overweight banks because there is a certain change taking place over there. Stock prices have stopped falling. Numbers will be decent. I mean, not extraordinarily great, but decent. And there is definitely a re-rating scope over here.
A company like Bandhan Bank came with a very good set of pre-quarter releases, impressed with IDFC First Bank, also both companies in which we and our clients are invested in. So, there could be nice pockets of outperformance within the banking space. As a measure of strategically placing your portfolio and maybe even a kind of a trading opportunity.
The general view is that capex is going easy, whether it is government or private. So, are we in for a significant amount of de-rating, let us say in this entire machinery/capital goods space, These are stocks which are trading at PE multiples which are 50, 60, 70, 80, even 100 times.
Dipan Mehta: Yes, you are right. There is a cyclical upswing, but the bigger problem over here is the base effect. Right until about a year-and-a-half, two years ago, they were coming up from a very low base. Now, when the results are declared for FY25 and FY26, they are working on a very high base and these are physical businesses. There are execution challenges as well.
Even if you have an order book position, implementation is a challenge. A lot of the positives have got factored in. But the order inflows are improving, as we are seeing, especially for the EPC and the construction companies and that may support these kinds of valuations. But that is not an undiscovered sector and you could see a significant outperformance. The order inflows need to be sustained at these levels for investors to maintain interest in these companies and for these companies to remain to be traded as these price to earnings multiples.
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