Let me start the conversation asking about the metal space. We just learned that the copper has been on a declining trend globally and that is bound to have an impact when you talk about the Indian company, not only metal companies but all of them that use copper as a raw material.
Sudip Bandyopadhyay: Absolutely right. I think global metals to a great extent depend on what is happening in China. Unfortunately, there were a lot of expectations being built around the Chinese Communist Party plenum and there were expectations of significant stimulus announcements for boosting the economy. Unfortunately, that has not happened and then obviously the market is disappointed. The set of data which came out from China was also not very impressive and the warehouse stock in different Chinese warehouses of multiple metals including copper is significant. Considering the above, I think global commodity prices are coming down and that does reflect in two ways in India. One, of course, as you rightly said, some of the Indian manufacturers who use copper are rejoicing because copper prices are down, so actually they are in a better position. But on the other hand, I think strong metal prices indicate strong economy and strong global economy, which does help economies like India, which has significant export potential. So, we will have to wait and watch, but as things stand today, the commodity prices are under pressure, metal prices are under pressure, and we will have to wait and watch what happens. Again, I will repeat, it will to a great extent depend on what happens in China.
But for us back to tracking earnings, I guess. Since this earnings season has started, have you put fresh money to work or have you added positions into any of the existing names looking at the earnings?
Sudip Bandyopadhyay: Well, one thing which we have been positive about for some time has been the FMCG space and we continue to believe that there is a nascent rural recovery and that gets reflected in multiple pockets. Look at the Colgate numbers, which came out. I mean, incidentally, Colgate derives 40% of its sales from rural market and a rural rejuvenation is helping Colgate definitely. The top line went up, of course, margin and other things also improved, but the fact this top line going up is definitely positive news for our rural-focused FMCG companies and we continue to remain positive on that and that is one area where money can be added.
The other area where we have been watching keenly is the BFSI space. The results have been a mixed bag. In some cases, there have been significant improvement. In some cases, there have been sharp deterioration in asset quality.
As far as specifics are concerned, let us say, Bandhan Bank, I think it was a laggard. There were a lot of challenges on asset quality, that has kind of turned around, asset quality has improved significantly, and things are looking up there.
And if you compare on a valuation basis, they are reasonably valued compared to their peers. So, this is one stock where one can take a long-term position if they have one year plus time horizon.
How is it that you are manoeuvring within the banking pack? I mean, it was an inline from HDFC Bank, Kotak was a disappointment and then now you have got IndusInd as well to digest. And on the other hand some of the smaller ones like an RBL, Bandhan Bank, that is where the positive surprises are coming actually.
Sudip Bandyopadhyay: You are absolutely right positive surprise was there in PNB as well. This time it is a mixed bag, I would say. Look at ICICI, I think the numbers were pretty good, but there are certain parameters where they were a little weak compared to past few quarters. So, it is a mixed bag.
There are two things happening. One is, the banks which were very efficient, their asset quality improvement cycle is over and we will not probably see further asset quality improvement for these efficient frontline banks.
Now, asset quality improvement is coming in banks which were laggard erstwhile. Let us say PNB, there is an asset quality improvement, there is a Bandhan Bank there is asset quality improvement.
On the other hand, there is a mad rush for deposits. Now, deposit mobilisation, CASA, has become the holy grail for the BFSI industry, particularly the banks and the loan growth will depend to a great extent on their ability to garner more and more cost-effective deposit. Because if the deposit is not cost effective, the margin will be under pressure, the more and more they do lending.
Now, under these circumstances, the focus shifts back to some of the efficient banks which have a large deposit mobilisation network. We will keenly watch HDFC, we will keenly watch ICICI, and some of the other larger banks with a strong network which is in a position to mobilise deposit in a much better fashion. Some of the PSU banks also will be watched because they also have a large network and we will have to wait and watch how things pan out.
I will be very keenly waiting for SBI results this Saturday and we will have to see what kind of improvements or what kind of deterioration we see in asset quality as well as their deposit mobilisation efforts.
Other than the pockets that we have already spoken about, anything that is on your watch list?
Sudip Bandyopadhyay: The infrastructure, construction and related sector continues to get significant attention of the government and multiple other authorities. Private sector is also hopefully getting into the capex mode and under these circumstances, these are the sectors which will continue to attract a lot of fresh orders and opportunities. Some of the companies in this space are still reasonably valued, I would say relatively and somebody in this investment for long term should reap benefits. I will talk about a specific company, Patel Engineering. They are predominantly into hydro tunnelling and irrigation related water projects and this is one space which has a significant focus of the government and multiple other authorities. Under these circumstances, their order book is significantly moving up and execution is improving. So, some of these spaces where the valuation still remains reasonable can be definitely looked at. Some of the larger construction, infrastructure capex plays like Larsen in spite of the run up continues to remain attractive from a long-term perspective.
