Just wondering what to do with Finance Bajaj, their quarterly updates are showing a bit of a contraction, and since it’s the holiday season the numbers will be a lot different. Some brokers are currently seeing a price target of 6000 but just want to know how you are looking to approach Bajaj Finance.
I think loan growth is slowing down. If you look at Bajaj Finance basically, the reason you give them a premium multiple over the years is because their loan growth is growing faster than other companies. NBFC who are in the consumer lending space. They noticed that extra push and it’s trading at 5.5x book value.
Now, yes, all of them are floating rate loans, the majority of them, which means that when interest rates peak and they start to slide down, then you can see the loan book accelerate further. But if you look a little further into the future, Bajaj Finance and other NBFCs will grow because they are also taking loans from their digital space that Bajaj Finance has not yet converted and so it is a another major concern. I think at the point of five and a half books, we should stay away.
Kunal insists that the commodity is not in a recession. My point of view is a little different. Let us see if you’re on Kunal’s side or mine and which side you’re on.
See the problem is basically if you look at the valuations of metal companies whether that is
, , , they’re all trading at extremely low valuations so that shouldn’t be a problem. Only the prospect of demand is of concern. Now, whether China is free of COVID is a big concern, and the volume of exports from China also makes a big difference.
So in this whole context, this is clearly a great time to buy metal stocks for a positional investment, say you buy them for four and a half times EV/EBITDA, you sell them for 4.75 EV/EBITDA, which is 25-30% back.
I’d love to hear your thoughts, especially on the back of a news stream for M&M Finance that RBI has lifted restrictions on third-party recalls. How do you see this coming as a relief for M&M Fin?
Obviously a relief as it has a direct effect on the NPA profiles of companies in this space. Also, this is a year where if you look at recent auto sales they have been very good and are likely to be even stronger in 2023, which is another positive for M&M Finance. It’s a company that has experienced a reasonably high NPA over the last two or three years and that will start to trend down and will be a catalyst for the stock going forward as well because of the new regulation.
Just wanted to understand in this whole infrastructure game between the topic of larger capital, where are you bullish and are you actively using the current market decline to add positions if you have held?
The current market decline will affect other spaces like agricultural commodities but in terms of infrastructure, unless interest rates peak because with the US continuing on its way, I think RBI cannot be paused. It will have to increase and it will pause after that. So we need to raise interest rates, food inflation to go down so that the overall inflation rate goes down. That’s when we will see private capital raised by corporations because they need to know the cost of capital when setting up a project.
What is your big oversized bet for 2023?
I think the outsized bet will obviously focus on the export sector because of some concerns about inflation, recession and recession in the US. If you still look at the hiring trends they are strong, which means that inflation and recession will be quite shallow. So in this context IT has adjusted quite significantly. They are trading close to their multiples. The scary thing is that the new order book hasn’t slowed down yet but will slow down in 2024. So I think those are the concerns for the next month or two.
Do you expect something unique and different from TCS later this month, I think they are the ones that will start the monetization season, do you expect them to start the monetization season in a doldrums or highs?
In this quarter there will be a marginal increase of maybe 80-100 basis points for all IT and TCS companies. Even if top sales don’t hit profit margin improvement will hurt profit growth so it will be a saving grace for all IT companies and hence it will start in a somber note. What we need to know is what the order book looks like. I don’t think companies will comment on it which is probably a good quarter.
Which side of the fence are you on when it comes to specifically and what are your preferences in the space as a whole given these rising inflation concerns?
Overall, companies have been able to basically weather the cost increase due to strong demand and that’s good news for the sector. Marico specifically I don’t really focus on. To me, it’s a very niche company and so overall, increasing the volume of the consumer staples space is key to seeing what this tells you about consumer power. use. Product innovation hasn’t worked out yet, valuations are still high, so I think this will be a good performer in the market rather than a better performer.
Views on cement package are only due to the fact that it has been dominated by a lot of news such as rumors about Adani Group checking or buying shares although both these BSEs are seeking clarification and Orient has said that it does not give preference to any such information. Then you’ve got something like yesterday that went up very quickly by 7% or so. What is your outlook for cement next year?
If you talk about Oriental Cement and such stocks, now one of the biggest advantages for them is that they are being traded at extremely low valuations. Currently, they are probably trading at around $50/ton, so with or without merger that gap could close in the future.
I think companies like
preferably ready as they will see growth in volume, capacity utilization in their favor which means margins will improve and valuations clearly standing towards them.
Oil dropped from 138 to 78 why was it not caught , why was it not caught in Indigo , why was it not caught in , ?
I think if you look at two separate fields; HPCL, BPCL always depends on whether they make money or not they will have to pass the entire discount to the consumer. So this always plays in the field.
For HPCL and BPCL, that situation is unlikely to change and because of that uncertainty it is also very difficult to trade or invest in these stocks.
Paint, on the other hand, is seeing increased competition that until about three or four years ago, Asian Paints and
was there in the civilian car. But then you have a lot of new entrants like . The peak in margins the sector enjoys is about to drop, and the type of pricing power they have is about to drop as well. So lower input costs will benefit all paint manufacturers including the competition, so I think overall the industry multiplier will go down.
Given that Bharat Forge also gives you a defense, do you think it’s a good idea to buy these drops?
I think you’re going to see a sort of price increase because the hiring economy is still very strong, which means companies are still expanding and they’re not signing contracts. Only fear of inflation.
Bharat Forge as a stock is still more reliant on its export order book and the defense won’t really change much. So for now I will stay away from Bharat Forge.
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