Better to be with the blueest of the blue-chip banks: Dipan Mehta

“From a long-term investment perspective, Avenue Supermarts is still a good stock to hold if you’re sitting on earnings but don’t want to invest in this company at those levels,” said Dipan Mehta, Managing Director, Elixir Equities. . Edited excerpts:

While other markets move in one trajectory, they move in another. Today, too, it is down by around 5%.

Investors are a little worried about DMart’s price-to-earnings ratio. They are also seeing a lot of disruption in the retail segment per se. Many online players are privately funded and large companies – Reliance and Tatas are also entering this particular industry. Thus, competition is intensifying and due to the base effect and their cautious expansion policies, growth rates are around the mid-20s. At the same time, valuations are on the rise. What we are seeing is a slight disappointment and leads to some title correction. This can continue until we find valuations at a reasonable level. From a long-term investing perspective, it’s still a good stock to hold if you’re sitting on profits but don’t want to make a new investment in that business at those levels.

What is happening to the banks because 2021 has seen fierce leadership from SBI? Now across the board banks are finally in the rally as the 18K approaches, but again do you think the stronger will get the stronger and weaker hands can just try to catch up? ?

I have been a very avid investor in banks for the past five years. I have invested in large cap, small cap and PSU banks at all levels, I have dipped my fingers in all categories of banks, and it is my understanding and final learning that you are best off. in the first two or three banks – HDFC, Kotak, maybe ICICI and SBI.

These banks continue to show growth rates equal to or better than most small and mid-cap banks in the peer group. So it’s not that small and mid-cap banks are growing faster, so you should invest there at the same time that these big banks with their big balance sheets can withstand any disruption or prices that come in. the banking sector, that they come from time to time, they can manage it better and they can better manage their NPAs unlike some mid-cap banks like YES Bank, RBL Bank, IndusInd.

We have seen all kinds of bad experiences from these banks themselves. So it is best to be with the biggest of the blue chip banks. You might notice that they can underperform every now and then, but if you look at the three, five, ten year period, banks like banks, the more they outperformed Bank Nifty, they outperformed their peers outperformed the PSU banks. I concluded that security pays off in long term banks and it is better to be in those top three or four banks and you can ignore the smaller banks for now. They may show higher growth rates, but that usually ends badly, in terms of higher NPAs a few years later.

Would you be a buyer in any auto stocks outside of Tata Motors and M&M?

After many quarters of underperformance, automotive auxiliaries can finally start to outperform in the market and eventually outperform. Many OEMs are expected to start posting better monthly sales figures as semiconductor issues are resolved. And some of the ancillary auto companies also profit from exports. Varroc Engineering also has a decent export market for its products. Our preference is for automotive auxiliaries that are neutral with respect to emerging technologies and old technology of internal combustion engines with regard to OEMs.

Whether the world opts for more internal combustion engines or more electric vehicles, auto ancillary companies, which focus on non-drive parts, will continue to do well. They will see their markets and their content per car grow.

With this investment strategy in mind, the companies that come to mind are –

,, Minda Corp, Endurance and maybe even Varroc Engineering.

But of all these companies, our clear preference is Motherson Sumi. It is a company in which we and our clients have invested. Second, the companies Minda – Minda Corp and Minda Industries. These three companies are extremely well managed. They have grown faster than industry growth rates in recent quarters, have well-diversified revenues from many products and OEMs, and have focused on improving their share of EV sales. and the OEM market.

So we’re pretty comfortable with these companies, the valuations are reasonable, and the balance sheets are strong, low-capital-intensive companies and in a way, they’re not impacted by the success or failure of newcomers. models given that this is the risk that OEMs take. . So we turn positive on automotive, automotive auxiliaries and prefer automotive auxiliaries to some of the OEMs where the risk factors are lower.

Enough has been said about the HDFC group’s underperformance compared to the market. Will expectations be much further for the past quarter?
Looking for some exceptional numbers from HDFC Bank given the data for the December quarter, which came out in terms of expected growth, growth in deposits. The supply cost will be controlled overall and they will be able to increase their net profit margins. This will be the turning point in terms of outperformance and underperformance of HDFC Bank. Finally, we could see the bank start to outperform its peers and the market as a whole. We’re very positive about HDFC Bank and it can grow at a much faster rate than a lot of banks and even some of the so-called nimble private sector banks.

They have done a phenomenal job when it comes to their APMs. In terms of technology, many of the issues that existed in the past have now been resolved, and they are also considering expanding their credit card portfolio. HDFC Bank seems to be working in all cylinders at this point.

The economy is looking for many opportunities to expand their credit portfolio. On the NPA side too, there would be fewer threats at this stage. Valuations are also at a reasonable level. HDFC Bank has traded at much higher premium valuations than it is currently trading. Although many investors have HDFC Bank in their main holdings, my advice would be that investors who do not have HDFC Bank among their top three or four holdings, now is a good time to gain weight in their portfolio for that bank. on the upper side.

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