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HomeMarket Live UpdatesWill HDFC Bank, Wipro be the next outperformers? Sandip Sabharwal answers

Will HDFC Bank, Wipro be the next outperformers? Sandip Sabharwal answers


From here on, HDFC Bank should outperform given the fact that they have been gaining market share. Look at the credit growth of 16% whereas the entire system-wide credit growth is just 6.7%, says Sandip Sabharwal, analyst, asksandipsabharwal.com.



HDFC Bank has come out with strong numbers. The asset quality is robust but can it take leadership over an ICICI Bank and SBI which are clearly the most sought after ones?
HDFC Bank could have started an outperformance cycle over the rest of the banking space. The main reason is there was a leadership transition and people were apprehensive as there was a credit card technology issue which led to the bank underperforming. In the meantime, many of the other comparative financial stocks rallied and moved up on the price to book valuation scale. So overall, from here on, HDFC Bank should outperform given the fact that they have been gaining market share. Look at the credit growth of 16% whereas the entire system-wide credit growth is just 6.7%.

They are capturing a huge market share gain at a large size . When that can be done without compromising asset quality, then it gets recognised. In any case, HDFC Bank has always been a more defensive bank. Private banks like ICICI or Kotak or Axis tend to be more volatile along with the markets whereas HDFC Bank tends to have its own cycles. My guess is the outperformance cycle will be there now.

In terms of absolute gains, how much it can gain over the next one year will be a function of overall market behaviour as well as the credit growth pick up in the system which is not happening still despite all the talk of economic recovery. In a nutshell, the inclination has to be positive but absolute returns wise potential could be 10-12%.

Any particular number out of the Nifty list that you are particularly looking out for?
What becomes critical at these times when everything is elevated and everything has gone up so much is whether the margin plays out the way it is being predicted. Often the margin story could get squeezed across the board. That will be the key to monitor all the company results.

Reliance might be a slightly different story because there we could have more of a revival of margin story rather than compression, unlike most of the other companies on the consumer side. Even some of those non-integrated steel companies could see some squeeze in margins vis-à-vis the last quarter. That is going to be the key feature of these results.

Also lately, Reliance has gone up quite a bit and it will be important for them to deliver strongly and the debt position will be important to monitor for Reliance because last year they had indicated that they are going to go debt-free but now they have announced new initiatives and have been acquiring companies as part of that. So, the balance sheet of Reliance will be the key to monitor.

Coming to , is the business scalable? The market certainly thinks so. After this earning report card, the stock is likely to be very much in focus today.
This is the revival trade in the sense that one or two quarters will be tougher to evaluate because of the base impact. But beyond that, they follow the offline retail model and if they add 10-12% new stores every year and then same store growth is 10-12%, 20-25% or 25-30% optimistically is what the growth would be over the longer term. One can combine that with the valuations. At the current valuation, it is trading at 110 times 2024 earnings. These are crazy valuations in my view. They are unsustainable. They do not fit into any valuation model which we have studied. So unless there is a new valuation paradigm which has come into the markets, I do not think these valuations can sustain.

What happens to the IT pecking order considering TCS has always cherished the pole position? Would the rest of the IT pack now play catch up with TCS and with the valuation gap narrowing down a little bit amongst the top tier IT names?

That has been happening already. The way Wipro, Infosys have performed vis-à-vis TCS both this year as well as for a slightly longer time period, we see a much huger outperformance from

followed by Infosys and TCS has been actually lagging behind.

The main reason has been that the performance gap has simply collapsed. There is no performance gap. We could have a scenario in the near term where Wipro earnings in terms of growth could actually outperform TCS. Wipro was very under owned and so it could become reasonably owned now after the kind of performance it has given.

The IT pecking order is very tough to predict right now. It depends on valuation at that point of time and where we are seeing value. Clearly Wipro and Infosys fundamentally are doing better than TCS at this stage, not that TCS is doing badly. Overall as far as the valuation paradigm goes, midcap IT valuations have run way ahead of the potential long-term performance.

Near term, they are doing well, longer term it is very tough to sustain that kind of performance. That is where there is a greater risk. The current result season provides downside protection to most of the larger companies in my view. The downside in most of the larger companies is limited even if the markets sell off a big time.



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