We saw nearly a 2% fall in the week gone by. It is not just the presidential elections in the US, but also the second wave of virus which is hitting the European region. Would it be safe to assume that the texture and the trend of the market has now changed completely — at least in the near term?
You are absolutely right about both these factors. Uncertainty around the US presidential elections as well as the second wave of virus in Europe contributed to the volatility and subdued performance in the global equities during the week. But having said that, I am of the belief that if the US elections throw up a positive result; now it can be either of the contestants winning. As long as there is clarity, I am of the camp which believes that markets will bounce back.
Also, remember there is a significant amount of fiscal stimulus that is pending in the US and if we read it right, that will get cleared as soon as the elections are over and stability is back. These two events together will bring the risk on mood back for the investors.
One more factor you must remember is that the Indian markets did not perform as badly as some of the other developed markets. India to an extent withstood the fall. The fact that Indian corporate results during Q2 that have been announced have by and large been a shade better than expectations. So, if you put all this together, I believe that markets probably will bounce back. We also have the biggest festival Diwali coming up, which is a season for people to buy equities and my belief is that around Diwali, the market will see a significant upward movement.
Banks were definitely in focus this week. If we take a closer look and take a look at the book when it comes to Kotak versus an IndusInd or even some of the other major private banks, where would you see more opportunity for growth going ahead?
It will definitely be a bank like ICICI Bank. Kotak has been shrinking the book and while the profitability has improved and things are looking good at least on the face of it, if the asset book is shrinking, I am not very sure how we can continue to give it a very high multiple. So yes, there is a lot of excitement around Kotak results, but I would not be running to buy Kotak stock.
At this stage, my bet will be on a bank like ICICI Bank, which has been growing the book, has taken quite a lot of provisions in the earlier quarters. So overall, it is moving in the right direction. Also, all the subsidiaries of ICICI Bank have been performing very well and that adds strength to the overall consolidated results as well as the subsequent opportunity of strengthening the balance sheet.
Do remember that ICICI raised Rs 15,000 crore of capital last quarter and they also generated about Rs 300 crore plus through disinvestment in ICICI Securities, which strengthens the balance sheet and creates cushion for further provisions, if necessary. So, considering everything out of the large banks, ICICI will be my pick.
We have a challenging week indeed. Any closing thoughts that you would like to leave us with?
I think in spite of the challenges, there are opportunities. I have been talking about the midcap cement space. Based on the consumption trend, cement results and the commitment of the government to spend on infrastructure, a company like JK Cement and Birla Corp definitely look good. In the tech space, we like HCL Tech. Irrespective of who wins, a company which is focussed on profit, geographically diversified and at the current peer comparison valuation, I would recommend a buy on HCL Tech.