Yesterday the market fell below 21,300. The fact is FIIs are not quite supporting the market and that pressure is coming in from all quarters. Is this a signal that it is just a bump along the road and everything is going to be smooth sailing or a sign of things getting worse?
Sanjiv Bhasin: The main culprit has definitely been HDFC Bank. I have been in the market for 35 years. I have never seen HDFC Bank go down the way it has. I mean, Rs 25,000-27,000 crore of delivery has been exchanged. When a bank index is so skewed by one stock, this will be the fallout. The Bank Nifty has corrected more than 3,500 points, all because of that. The clear outcome of the bank results is that the cost of deposit has gone up and deposits are what everyone is vying for.
In that case, some of the smaller cap banks look very good. But still, there is enough room on the largecaps to outperform now. We think the midcaps are where there could be a little more bloodletting. However, if we are in a global bull market, there will be this proverbial problem because of one large bank. And a lot of the PMSs and XYZ have all been overweight on HDFC. This is a cleansing out process.

I would expect markets to be hunky dory by the end of this week which means tomorrow is expiry, Friday is a holiday. Results, particularly on the midcap side, have been rather stellar. Whether you see an REC or an Indus Tower or IndusInd Bank. The overhang of FII ownership in HDFC has been the main culprit. The volatility has aided them because of the Bank Nifty underperformance. I think there is a reversal on the cards, maybe in the next two days.

It is not just HDFC Bank which has got a chill like Delhi, but even other largecaps, right? Reliance Industries, for instance or an L&T has not been doing a whole lot in the last one week. More importantly, there was the rub-off of HDFC Bank on IndusInd Bank which fell 6.25% yesterday. SBI has been a drag. Even though the numbers were decent, the Axis Bank ADR again was falling last night.
Sanjiv Bhasin: Like you said the weightage of HDFC Bank will prompt a lot of rebalancing in the largecaps. We still think about IndusInd, Axis. What about ICICI? The numbers were far more steadier than ever. And in IndusInd, there was a correction. But on the four-wheeler side, being one of the part owners of Ashok Leyland, they are seeing the best traction ever as far as vehicles go. IndusInd is the largest lender in four-wheelers.

It is just a matter of time that their NIMs start to expand more. We have a buy rating over here on IndusInd, it is in our portfolio. But like you said, it is the Bank Nifty which has actually led from the front. And to balance that, you have Reliance and L&T has more or less been on a market outperformer rating.

But on the other hand, look at Persistent, look at Coforge, look at midcap IT, look at midcap Pharma. There is enough room, there are enough legs for the market to move up. Bank Nifty is very, very grossly oversold. Maybe in the next 48 hours, we will see more reasoning out of HDFC Bank. You cannot have a balance sheet at 13.5-14 times one year forward when some of the largecap, midcap banks are trading at 18 times.

This is the time for long-term investors who want to buy a good stock. They have crossed the 2 crore mark on the credit card business. I am not trying to portray a perfect picture. But in all this weakness, when there is weakness because of the over-ownership, you will get the opportunity of an entry point into HDFC Bank.

IDFC First Bank said NPAs are coming back. Nobody wants to hear that. That spooked the stock.
Sanjiv Bhasin: Yes, I would take it with a pinch of salt that they are one of the largest MSME players. You know where Vaidyanathan has been trying to skew, trying to gain his market share and that is in the two-wheelers in MSME loans. Rightfully, there will be a little bit of pressure there. But they are one of the fastest growing CASA ratio depositors. Their deposits have been stellar. I think their NIMs above 5% is a clear example of how he has modified a lending institution into a full-fledged bank. At Rs 80, it has a very fine risk reward. Like you said, there will be a skew towards NPAs rising a little bit in an economy where sooner rather than later, the budget and other things will be the trendsetter. But given the government’s outlook, given that most industries are doing well, a little bit of tinkering on retail and MSME will be par for the course.

I still think IDFC First Bank is one of the finest-led banks. The CASA ratio deposit growth is one of the stellar players over there. At Rs 80, there is a fine risk reward of entry into it.

Are you recommending buying anything if the market were to decline further today?
Sanjiv Bhasin: Well, wholeheartedly, I mean, ignore the numbers. Petronet has been one of our topics also from 2005-2010. As a follow through of that, GAIL numbers on the 29th will be the most stellar we have ever seen. As a corollary to that, if LNG prices are reasonably well played because they have long term contracts, then GAIL becomes my topic there.

IndusInd Bank is something I spoke of. Indus Tower came up with two extra, after provisioning everything for Vodafone. And Bharti’s ventures into 5G is going to be stellar. I mean, the management commentary is extremely bullish. This stock is headed to new highs. And my favourite, SW Solar.

REC is going to commission almost Rs 1.5 lakh crore on the solar panels. The only player in the world which does MEP or mechanical engineering plumbing, is Sterling & Wilson. This stock is headed to Rs 750. So use the decline to buy. GAIL, IndusInd are the largecaps. You can add an HDFC if you are looking to do a SIP. You cannot get it cheaper.

I would like to draw everyone’s attention to railways. Everyone thought that railways stocks will move at the bullet train speed. Then they started to get aviation speed. What is going on? You remember the word Bhasin Saab used to say in childhood, chuk chuk gadi, rail gadi.
Sanjiv Bhasin: Absolutely. Yesterday, IRCTC decreased by 7%. I am still bullish on this space, but like you said, there is froth across the board on some of these sectors, particularly railway, defence and the midcaps. Be watchful over there. There is too much expectation built-in. IREDA numbers were good, but it trades at a four-time price to book. Now, even HDFC is less than two and a half times or less than two and a half-three times less and Axis and ICICI are a scream over here. I would definitely say get into largecap banks as that is a sweet spot.

In railways, we still think of IRCTC. Even though it has a stream of businesses which are reasonably well-priced, the stock is not cheap. We still think that has more legs on the upside given that Vande Bharat, booking, catering and the Neer part is doing extremely well. But midcaps is where the pain can persist, at least till this expiry a little bit more.