Let us then talk about those banking names because for the markets to move up, the support from financials is very adequate. Do you think even an allocation to the likes of housing financial names, insurance, NBFCs would be a prudent strategy for investors even in volatile times like this?
Yes, we have seen really high beta stocks moving up sharply over the last few days especially led by the broader range of the financials. The management commentaries that have come in the last few days have been very positive and supportive. Lot of NBFCs have started saying that collections at efficiencies have gone up. The people opting for moratorium have come down and the only thing that these guys are waiting for is a pickup in the loan growth or the pickup in demand for the loans.
If you look at the overall picture, there is a kind of pent-up demand at least in the near term, which is supportive. Valuations were supportive and obviously the liquidity flows have been pretty sanguine, especially in some of these banking and financial names. We believe that over a longer period, some of the larger companies in this space would do well. They will not only gain market share on the back of their balance sheet strength ability to raise money at a lower cost but also to leverage on the growth in the longer term.
Having said that, in the overall banking and financial space, some of the private banks like HDFC Bank, which we believe is a diversified player, ICICI Bank in the overall private space and SBI which has reported much sharper improvement in the balance sheet; if you look at some of the key numbers, they which are better than some of the private players.
If you talk about the overall housing finance space, HDFC clearly stands out in terms of not only the parentage and the brand but a strong balance sheet. Plus they have the added comfort of valuations coming in from the subsidiaries which are also doing well. If we look at the broader spectrum of financials, insurance is another space which was under pressure for quite some time, especially after the government came out with dual taxation policy where you could opt for a tax policy without any deduction and that is where some of the de-rating started happening.
But now we are seeing that with this COVID environment, the health awareness plus the awareness for life has gone up. People are looking to take cover and that should be over a longer period of time. Valuations were attractive and that is where we like companies like HDFC Standard Life and ICICI Pru Life. Both had seen some of the block deals sell out from the promoters. Now that is behind; so an overhang of the stake sale is largely behind these names and we believe that these could continue to do well over the near term as well as in the long term.
How are you looking at this visa news particularly for the IT sector as a whole?
This is definitely a negative sentiment in the near term for the Indian IT players. But if you look at the overall picture over the longer term, a lot of these Indian companies have been facing a lot of resistance from the countries over the last few years in terms of the visa restrictions and visa costs and they have gradually moved towards more and more hiring of the onsite locals who are there. So definitely it increases the cost and it reduces the competitiveness for the Indian IT players. We need to see how the Nasscom and the Indian government together can help in this period of crisis for the IT sector as a whole.
We believe that over the longer period, these issues will get resolved. The US as a country is going into an election year. We have been looking at a lot of this rhetoric from the president not only towards India but some of the countries like China as well. So these will cool off once the election is over and over a longer period, we see that the competitiveness in terms of the key skill set that these Indian IT players provide should help them overcome the near term challenges. So yes, in the near term they could be under pressure but some of the larger IT players like TCS and Infosys could be a good investment opportunity if they were to fall on back of this news.
From the financials, what else would be your pick?
If you look at the overall banking space, the sentiments have turned positive and that is helping a lot of these names which were highly suppressed. The concern was they will have much higher NPAs, the asset quality will slip, recovery will take time and there was a story of extreme fear. From there, they are recovering and I am not sure of the newer environment and how much market share these smaller names could garner. But yes, the valuations were suppressed and to that extent, some kind of recovery is being witnessed across the board.
I would believe it is mostly a trading opportunity. People who are looking at long-term investment should not get swayed by some of these weaker balance sheets and stick to the larger names. These are at max some relief rally on the back of some fund flows that are getting in these names, which are cheaply available because of the fear that has gone into the entire financial basket.
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