Stocks

harendra kumar: Harendra Kumar on 2 momentum buys and one preferred bet in banks

“Momentum is backing , at the moment. continues to be the preferred bet,” says Harendra Kumar, MD-Institutional Equities, Elara Securities India.


Is banking indeed going to drive earnings growth? Some of the data coming in, the credit growth data is back at 18%. The bulk of the private sector bank results and even the public sector banks for that matter appear to be throwing up good numbers and commentary. What would be your order of preference within financials with a 12-14 month view?
Momentum is backing Axis Bank, Federal Bank at the moment. ICICI Bank continues to be the preferred bet and is over-owned but in terms of outperformance or a fair trade, Axis and Federal will possibly outperform some of the larger ones.

If you are looking at portfolio investment in terms of deep, structural value, that is possibly the best entry point for

. One cannot get prices better than this because we believe that all the issues of overhang will probably disappear over the next financial year. So that is the construct on the private banks.

But the variable that is moving is the sharp deceleration in the NPA numbers. The private sector banks have reached a point where probably the incremental delta in terms of reduction in NPAs is going to be lower but the PSU banks continue to sit on a high number which is close to around 5%. So the market is now taking a bet that the incremental profit beyond credit growth is going to come from the reduction in NPA for the PSU banks.

Hence we are seeing PSUs take off more than private banks at this point of time. So as a momentum trade, PSUs may outperform private banks over the next three to four months. That is the context in the immediate term.

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What is your big call at this juncture? What are the top four-five ideas which you would back your call with?
We spoke about banking and within banking, we are having a conversation around the PSU banks at this given point of time. Then we also have automobiles. The BSE auto index is starting to come back into play at this given point of time. , M&M and are actually making out into new zones.
There is tremendous earnings strength behind the stock prices and the tailwinds of the semiconductor issue is easing up and the demand continuing into the next year is very high. So banks, autos and the third big variable is the power stocks.

The conversation is not just getting lifted towards understanding names such as

and . Given that they have lined up significant capex over the next decade, the regulated ROE is going to double, triple and they trade at a very reasonable valuation.

We are going to see the energy mix, the energy companies and how they are going to grow taking centrestage from here on. This is the new additive to our portfolios that we are speaking about at this given point of time.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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