Thursday, December 9, 2021
HomeMarket Live UpdatesFinancials offer best risk reward in the market: Bhavin Shah

Financials offer best risk reward in the market: Bhavin Shah


The rerating of has been going on but it is not complete yet and there is no reason today that it should trade at any discount to HDFC Bank, says Bhavin Shah, Founder, Sameeksha Capital

Where are you finding attractive risk reward in this kind of a market?
We continue to find opportunities in the financial space. We are just starting to see financial services companies putting together good numbers. We have not yet seen a strong credit growth but that may come and that space still looks relatively attractive and also in some cases on an absolute basis.

Where among financials? Is it the largecap PSU banks or select PSU banks or is it the private banks and if private then what kind of private bank? The Kotak kind of variety or do you want ICICI Bank or Axis Bank which are more corporate?
There is some strong views out there about PSUs bank being a great story and maybe there is an opportunity there but today we have not yet dabbled into that area we are still trying to understand how much of the improvement is structured, but some of the large private banks like ICICI Bank has demonstrated over last two years that their governance standards have improved significantly with respect to their lending practices and they are by far the leader in technology when it comes to the big private banks, far ahead of their peers in some areas.



In my view, technology is becoming an important differentiator for these banks in terms of how they service the customers, how they look at the business opportunities and I personally see that really helping ICICI Bank. The rerating of ICICI Bank has been going on but it is not complete yet and there is no reason today that it should trade at any discount to HDFC Bank. Growth is definitely higher in ICICI Bank and it definitely looks like a good opportunity.

How are you analysing the midcap space? What kind of themes are you researching? You are sitting in a hub of chemicals and textiles. Some of the chemical stocks seem to be going out of market favour. But when we speak to managements, the businesses are rocking. What is the view there?
Chemicals will remain a story for India for a number of years to come. There are a lot of investments taking place, new capacities being added, companies getting into downstream products like specialty chemicals and there are incentives in place also. In some cases, companies are taking more of an integrated approach and so opportunities will definitely continue in the chemical space and one has to decide what kind of risks one wants to take and if somebody wants to go into more of a flavour of the time in all sort of names where there is a short term story or focus on companies which are building a very strong portfolio.

Textiles is a sector which has many moving variables and moving parts. I am probably less inclined to get into that.

What kind of conversations are you having with your clients or even in the peer group? Is some kind of hesitation building in approaching the market with fresh capital? People want to ride down whatever they have invested in, what is the sense you are getting when you speak to some of them?
There is probably some bit of hesitancy. In the last couple of months, maybe there was some bit of holding of cash and less inclination to put new money to work. But it is really on an individual basis. If we find now opportunity, we are still willing to deploy capital but obviously we will evaluate what will be the impact if the interest rate cycle kicks in and if crude stays at these levels and try to reduce our risks from that standpoint.

So even though we may be very bullish on a name like InterGlobe Aviation in the aviation space, we may be a little careful about putting a lot of money to work, given what is happening with crude prices. It is really trying to take note of the risk involved and one also has to keep in mind if indeed there is a sharp correction in the market.

Obviously small and midcaps can be hit harder. If one buys something there, one must be willing to hold it for a longer period even if there is a correction in between. There are a set of investors who are still looking at the market as an opportunity with some caution.

The India story looks really promising in a very long time. Post 2008-2009, there was a very long and difficult environment for the Indian economy and then there were years of cleaning up of balance sheets and bad loans and so on. Then came disruptions with demonetisation, GST and then Covid. If all these factors are behind us and in between a lot of decisions have been taken, I think the platform is set for a very robust growth in the economy over the coming years. That keeps some level of optimism about the market even at these levels.

What about capital goods? Would you also like to play the cyclical theme in engineering and capital goods?
We are not averse to investing there but currently they have run up a little too fast for us. We would not chase these stocks. Our philosophy is very clear. In whatever we invest, we have to see an ability to earn returns which are above our minimum hurdle rates based on the risk of the business and the volatility and the liquidity in the stock.

If we do not find them, we are okay not owning it. We do not have to own anything per se so we currently do not have anything in that space. But yes, there is probably an opportunity to keep looking at that space.



Source link

RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Recent Comments