Sandip Sabharwal: Adani Group stocks to go through a long phase of consolidation: Sandip Sabharwal
Is this a good time to let us say again have a very contra view on IT because NASDAQ is stable, nothing else matters?
It is tough to say because when NASDAQ actually cracked a lot Indian IT stocks were relatively stable so does NASDAQ being stable actually indicate again an uptick in outsourcing. I think there is a lag. So my guess is that next one or two quarters will be quite tough for IT companies. Now good news and good prices all of us know do not come together so at some point of time within these quarters we will get into buy zone for IT companies but at this point of time I would still like to focus on domestic focus companies. The news flow continues to be extremely strong when it comes to defence orders but is that kind of aggressive order pipeline already priced in into the stock prices is the question?
For some it will be, for others it will not be and in many of these cases like the signings yesterday these orders were already announced earlier and it is just that first an order is announced and then it is actually signed and then gets implemented so I think so we should not be doing double counting in some of these orders.
But that said overall it is a low volatility sort of sector in terms of performance but these are long gestation projects so for example many of the ship orders or frigate missile launch orders which were announced yesterday the delivery starts in 2026-27 etc and then goes on for a few years so it is not that everything is going to come now. These are very long gestation projects and as such the revenue is spread out.
We have not discussed Adani Group of stocks in a while has the storm come and gone for them, enough and more has come out in terms of disclosure, growth plans. Debt markets are also no longer that scared as what they were let us say in Feb and March?
The impact of Adani Group on the overall market should be limited because the base case was always that they are unlikely to default and if they are unlikely to default then for the rest of the market the contagion should be limited. Now how the overall Adani Group will perform is something we need to see because stocks have fallen from the top but they are still not cheap because the rise was so abnormal that people think that because they are half the valuation they are cheap. Most of them are still not cheap. So I think they will need to go through a long phase of consolidation.
Where do you find comfort to add fresh positions to banks considering traditionally you have liked SBI, ICICI Bank and Axis?
I would think all of them are good to buy now. I would say risk reward is at worst case another 10% downside and potential upside of 25% over the next one year or so. So I think risk reward is favourable. These banks are well placed, balance sheets are strong, profit growth will be reasonable.
Tomorrow onwards we will have the auto sales data come in for March. Do you think any positive or negative surprises that we can expect?
That I cannot predict because I do not know what numbers will come out. But I think many of the auto stocks got beaten down after the monsoon prediction that monsoons will be bad, summers will be very hot and that might impact overall sentiment, rural income, inflation, dynamics, interest rates etc.
So I think that is where the correction in many of these companies which are actually doing well started. Now we have not had a hot summer till now and monsoon is still a question mark how that will be. So I think those externalities are difficult to predict but valuation wise I think these companies have become more reasonable now and although consumer demand might be slow to recover but I think it will eventually recover and going into later part of this year we should see stronger growth. So four wheelers, autos I would still like to see and two wheelers I would still like to avoid.
PSU banks, except SBI, nothing, use the exit to get out? In fact, lot of us may have bought PSU banks in November, December, January considering that the trade would have extended itself beyond 2022 but that trade has reversed. Now you are getting a spike back, time to clean up the house?
I do not buy many of these banks but that does not mean that they cannot rise up further. If the overall banking sector moves up, then they might also move up but challenges are more on the operational side because this year we would have seen the best of the reduced write-offs, increase in margins, etc. All of that will not go through from next year onwards. So, I think the results and everything are not going to be as great as what people think it would be.
Why do you say that? Credit growth is still strong, retail NPAs are under control.
Because of the fact that the credit, one, the credit growth has been strong, it will moderate a bit but I think on the deposit side, many of these PSU Banks, the costing will go up substantially because they are losing market share in low-cost deposits and once the easy liquidity chase got over, I think that will be the challenge. So, I think the impact of that we will need to see.
