#AskBQ | HDFC Bank Slips Post Analyst Meet, What Next?
Transcript
00:00 Thanks for watching Ask BQ on BQ Prime.
00:03 My name is Alex Mathew.
00:05 This is the return of a show that a lot of you are familiar with.
00:08 And as the name suggests, it's a show that gets you answers to all of your stock related
00:13 questions.
00:14 So, over the course of the show, do send in all of your questions live.
00:18 I'm joined in live on YouTube, and we will soon have a WhatsApp number running as well.
00:25 But for now, if you can tune in on WhatsApp and ask all of your questions live, that would
00:29 be great.
00:30 We will start with a segment every day that focuses in on a particular stock or a group
00:37 of stocks that is very active in trade.
00:39 And then we'll start taking questions.
00:41 Let me introduce my guests for the day.
00:43 We've got Dharmesh Kant, who is the head and equity derivative research at Chola Securities.
00:51 And we've got Nilesh Jain, who is the head AVP technical and derivatives research at
00:57 Centro Broking.
00:58 Thank you so much, guys, for taking the time.
01:02 I think I might have gotten Dharmesh's designation wrong, but he's at Chola Securities.
01:08 Dharmesh, thank you so much for taking the time.
01:11 Let's start with a conversation about HDFC Bank, because this is a stock today that has
01:17 almost single-handedly pushed the Nifty back below the 20,000 mark.
01:22 It's down about 3.8 percent.
01:24 There's a few headlines coming in from that conversation that the management had with
01:28 sell-side analysts earlier in the week, and that has to do with a few key parameters.
01:34 One, of course, is the asset quality, which is expected to take a bit of a hit, but also
01:39 expecting net interest margins to contract a little bit.
01:42 And all of that has to do with the amalgamation or the merger with HDFC.
01:47 What are your initial thoughts about these headlines, and how should investors react?
01:51 Hi, Alex.
01:52 Good morning.
01:53 So this was always there on the cards.
01:54 I mean, this analysis was already there that after the merger, there would be a hit on
02:00 the net interest income and IMs, and the asset quality, there would be some cohesion happening
02:06 out there.
02:07 But when it is printed in black and white, then it makes all the difference, and this
02:11 is what we are seeing today.
02:12 Because when it comes up on the horses about itself, then it's a stepping on what the thesis
02:18 was already there.
02:20 So I mean, my biggest fear with the bigger banks like HDFC or SBI is that the growth
02:27 part of it comes to the growth of these banks.
02:30 So particularly what we have seen is it's the retail and the unsecured portion, which
02:35 has been driving the credit growth market off late.
02:38 And the corporate growth has not been there.
02:40 And even if it is there, it would be a low single digit kind of a corporate growth, because
02:44 most of these companies are flush with funds.
02:46 Their internal equivalents are very high, and they don't need that for their capacity
02:50 expansion.
02:51 Whatever they need is more of a working capital kind of requirement, which is not very high
02:55 as of now.
02:56 Going forward with the type of size after the merger HDFC bank will be setting on, it
03:03 will be difficult to maintain a growth rate of around, say, 18 to 20% on the AUM side,
03:09 that is the credit growth.
03:10 At the same time, the margins will definitely take a hit, because the deposit base has not
03:14 been expanding as fast to maintain a growth of 15%.
03:18 So they need both in place.
03:21 And most of the NBFCs have taken up the low ticket home sales or the credit growth or
03:27 unsecured part of the business.
03:29 So there's a challenge out there.
03:31 So this was there in the offing.
03:33 What I think is, for next say, one year, HDFC bank will be a underperformer to the market.
03:39 It may not correct more, because still they are sitting on the strong perimeters.
03:44 And ROE 15%, 16% is a given for HDFC bank as a party will remain impeccable.
03:49 Maybe for the 10, 20 basis point, it can be there.
03:52 But thereafter, it should stabilize from there.
03:55 Only part is the valuation part.
03:57 So it has come down.
03:58 I mean, it's right now trading at three times price to book on a TTM basis.
04:04 But going forward, I think it's likely to correct to around 2.2 or 2.1 times post the
04:10 merger happens.
04:11 So that is the challenge.
04:12 So the question, I think, we've already got one question.
04:17 And so the most important question with HDFC bank, of course, is and Bala is asking, should
04:22 we buy or sell HDFC bank?
04:24 That's a very simple question.
04:25 I think everyone's thinking about that right now.
04:27 You said it.
04:29 These murmurs have happened over the course of the last several months.
04:32 This is coming from the horse's mouth.
04:34 Would you say that you should still hold on to HDFC bank if you are invested?
04:40 Should you take these opportunities to add to your holding?
04:43 That is something that has happened in the past.
04:46 Valuations compared with historical averages have fallen.
04:50 Or would you say that you're better off shifting to something like an ICICI bank or maybe even
04:55 a State Bank of India or a quota?
04:57 It's better to switch.
05:00 I mean, it's time to sell HDFC bank if you have not done earlier, because we were of
05:06 a very clear view that the coin should not be in the portfolio as far as long-term fundamental
05:12 view is concerned.
05:13 Because there are plenty of other options which are available in the same space where
05:17 you can have a better delta.
05:19 So ICICI bank or Axis Bank does have a better delta than HDFC bank and even for that matter
05:25 SBI.
05:26 Because SBI is still the valuation.
05:28 What I believe is this all public sector banks will eventually catch up with the financial
05:32 matrices of private sector banks.
05:34 So there's a catch up value which is bound to happen.
05:39 It's already started, it's in the process.
05:41 But going forward, they will be almost at par with the valuation multiple of private
05:46 sector banks.
05:47 So there even SBI has a bigger chance.
05:49 So four banks which I would like to highlight here, if investors want they can switch to
05:53 them.
05:54 Two from the private sector, that is ICICI and Axis and two from the public sector space,
05:59 one is SBI and the other one is the Bank of India.
06:02 Fantastic.
06:03 All right.
06:04 A reminder to everybody tuning in, if you are on YouTube, then you can send your queries
06:09 on the chat function at the side.
06:12 I'm there as well.
06:13 And so I can talk to you directly.
06:15 In the meanwhile, why don't I go to you, Nilesh, on the banks that Dharmesh has also mentioned.
06:20 First, let's talk about HDFC bank and the key levels to watch.
06:24 But since he has given recommendations for Axis as well as ICICI and State Bank of India,
06:30 why don't you tell us the best levels to look at for those as well?
06:33 Hi, good morning, Alex.
06:35 Well, if you look at the HDFC bank, today it has given a big gap down opening and also
06:42 given a breakdown from its key moving averages, that's 21, 50 and 200-day moving average.
06:48 So all these three moving averages have been broken in today's trading session.
06:51 So certainly that is giving further follow up selling might be coming in the coming sessions.
06:56 So as far as the levels are concerned, I think that the stock might face the levels of 1500
07:01 going forward in the short term.
07:03 So it is not advisable to take any countermeasures at this current level and better to avoid.
07:08 The better options are available from the HDFC banking space, I completely agree.
07:13 State Bank of India continues to remain our preferred bet from the public sector bank.
07:17 We expect further upside momentum to continue for the target of 620 to 650 in the near term.
07:22 The stock price should be placed below 585 from trading point of view.
07:26 Apart from that, Axis Bank, which is constantly hitting fresh all time high levels and the
07:30 structure is still hinting that the stock has the potential to move towards 1100 mark.
07:35 So if one can buy on decline and buy in a staggered manner, and the stock price should
07:39 be placed below 980, the ideal buying range should be 1000 to 1020.
07:45 So Axis Bank and from PSC banking space, State Bank of India continues to remain our preferred
07:50 bet.
07:51 There's a follow up question, this one from Subramanian P. He says that he's a long term
07:57 investor in HDFC Bank.
07:59 Should I worry now or wait for the quarter results?
08:01 Dharmesh, I think that's an important question.
08:03 One, we've been talking about what could pan out, but we've not seen it in black and white
08:07 yet.
08:08 Would you wait for the print?
08:09 No, no, I won't wait for the print.
08:10 I mean, the view is very clear.
08:11 The action is very clear.
08:12 There will be a deterioration on the NPSA, on the net interest income, net interest margin
08:13 and the profit margin.
08:14 Even book value is going to take a hit going forward.
08:21 So that means there is some forecasting which will be accounted for in the next quarter
08:29 earnings and that will take a hit on the book value.
08:32 So it's better to sell it now because even if it stabilizes, I don't see a good price
08:36 action going forward.
08:37 So I mean, if you at the same time, if you're invested in the stocks, which we mentioned
08:43 earlier, like XS, ICICI or SBI, one can get a better return than holding on to SGUC Bank.
08:49 We've got a question live from Anand Sivaguru, and he's asking about the best options in
08:54 the diagnostics space.
08:56 And interesting, right, because Dharmesh, earlier in the week, we saw a headline that
09:01 said the online diagnostics companies are raising their prices.
09:07 What would you say about the players in the space and which, according to you, are the
09:11 best picks?
09:12 I think the prices was, I mean, that was a natural course of action which was about
09:18 to come because initially to gather the market share, the price cut was there.
09:23 But now since it has stabilized and now people have realized it will be profitable, it's
09:27 more important than to have the market share.
09:30 So just things will happen.
09:32 I mean, all the diagnostics players are good.
09:35 But particularly if you say, I mean, as SRL, one can go on with or maybe the Metropolis.
09:44 So those are the two spaces where we think still there is a good upside to action.
09:50 But overall, the entire space looks attractive to me after the price dropping, which we have
09:55 seen in the last one year or so.
09:59 Now, we did speak about a few banks.
10:02 We've got a question from Abhishek, who's asking about Punjab National Bank.
10:07 And he's saying that it's run up over 60 percent over the last six months and showing quite
10:11 a bit of strength.
10:13 On the charts, though, Nilesh, what's the view on Punjab National Bank?
10:17 And would you suggest that if someone is holding on to take these opportunities to book some
10:22 profits or would you suggest that it's still going strong?
10:25 Well, we have been bullish on the PICB banking space.
10:29 We have seen a good breakout on the Nifty PSU Bank index chart.
10:33 So overall, all the PSU stocks are looking positive.
10:37 And this momentum might continue from here as well.
10:40 So specifically from the PNB stock, if you look at it, it is constantly forming a high
10:45 cap and high bottom formation.
10:46 So I would advise to keep a trailing stop-loss near about 72 and stay put for the upside
10:52 target of 80 to 85 in the near term.
10:54 Overall, within PSU banking space, as we mentioned and discussed, State Bank of India continues
10:59 to remain a preferred bet.
11:00 And if somebody is looking for a smaller bank, I would rather suggest to go with Bank of
11:04 India.
11:05 We have seen a multi-month breakout in this particular counter, currently trading at 110.
11:09 It has a potential to move towards 120 to 125.
11:12 So this particular counter can also be bought at current level and on decline, keeping stop-loss
11:16 below 102.
11:17 OK.
11:18 A question then on the wider public sector bank space, because we saw on Friday, rather
11:24 on Monday, Dharmesh, that Indian Overseas Bank hit an upper circuit at 1.20 percent.
11:30 It gained about 15 percent for the day.
11:33 There were a few large trades.
11:35 But then how do you react to this kind of movement?
11:39 Is it necessarily reflecting a change in the fundamentals?
11:43 One fundamental change is that the asset quality of all these public sector banks have improved
11:50 drastically.
11:51 And now, with the type of economic trajectory and growth we are seeing, the momentum which
11:56 is there in the economy, this asset quality is stable.
11:59 It has likely to remain stable and good for the foreseeable future.
12:04 Secondly, all these banks have revamped themselves and they are more on the lines of how the
12:08 business has to be done in line with the private sector banks.
12:11 So they have become aggressive.
12:13 And the sell point, the B2C point has improved quite significantly.
12:18 So what I believe is the re-rating is happening on the valuation part rather than on the business
12:24 part.
12:25 So business is catching up with the private sector space.
12:27 But the more catch-up, all the aggressive catch-up has been done on the valuation part,
12:32 where all these banks are likely to get price-to-book value multiple, near to or close to all the
12:38 private sector.
12:39 So that is where it is happening.
12:41 And the second thing which Alex is there is the banks like Indian Overseas Bank and all,
12:47 they have a very few liquidity flow.
12:50 I mean, the liquidity levels are very less when you come to buying.
12:54 So even a good sub-fund is going to buy, a few HMIs, they decide to buy or zero-in on
13:01 a particular public sector bank.
13:03 So because of lack of liquidity, the price is far higher.
13:06 So one has to be mindful of that fact.
13:08 But stick to the larger public sector bank basket rather than going into the smaller
13:14 ones.
13:15 Quick view, Nilesh, on the wider public sector banks.
13:19 In point well taken, Dharmesh, stick to the larger ones.
13:22 But then we've seen a lot of price action in the recent past on the smaller names as
13:26 well.
13:27 And incidentally, IOB became the third largest public sector bank by market share on Monday,
13:34 overtaking Punjab National Bank.
13:36 Nilesh, what's the view on the wider space, public PSU banks?
13:40 Well, overall PSU banking space, the view is clearly on a positive side.
13:45 We have seen a good momentum in the last four to five weeks now.
13:49 And this momentum might continue.
13:50 So specifically, a few names from the index, IOB, Canada Bank, IOB, State Bank of India
13:55 are looking positive.
13:56 And smaller names, I would rather go with the Bank of India.
14:00 So that's what is counted.
14:01 But clearly on the technical parameter, it has given a good breakout, multi-month breakout.
14:07 So it has the potential to move towards 120 to 125 and then buy on the client, keeping
14:11 stock below 102.
14:12 And apart from that, a few other names like PNB and also Union Bank, where we might see
14:17 a further momentum to continue.
14:19 OK, we've got a question on Anand Rati Wealth.
14:22 And this is for a viewer who's tuned in live on YouTube.
14:26 Amit Rastogi is asking, what's the view on the long term fundamentals?
14:31 And Dharmesh, this is for you.
14:33 It's a stock that is currently at close to 1500.
14:36 And this is a company that has committed to 20% growth consistently.
14:42 And it has beaten that in the last financial year.
14:45 It has beaten it in the first quarter of this year as well.
14:48 What's the view on this?
14:49 Would you suggest a fresh entry?
14:51 Alex, my sincere apologies.
14:53 I would like to give it a pass because of business-like means.
14:58 OK, no, that's a fair point.
15:00 Nilesh, would you be able to give us a view on the technicals of this counter?
15:04 Yes, I can provide the technical levels.
15:07 So overall, we have seen a good momentum in this particular counter.
15:12 And it is on the verge of a fresh breakout.
15:14 The breakout is now placed at somewhere around 1500.
15:17 It is hovering exactly near those levels.
15:19 And looking at this momentum, I think this stock may continue to do well.
15:24 From Neotem point of view, this stock has the potential to move towards 1600 to 1650.
15:29 So one can keep a trading stop-loss below 1420.
15:33 And if somebody is looking to make a fresh entry, I would suggest to buy and decline
15:36 keeping stop-loss below 1420 for the upside target of 1600 to 1700.
15:43 By the way, Amit, we'll try and get you a view on this particular stock.
15:47 But then Dharmesh has a fair reason for not giving his view on this one.
15:52 We've got another one, Renu Shah, who's asking about between hospitals and the other counters
15:58 in the healthcare and the pharma space, which would be the better play from the fundamental
16:03 standpoint?
16:04 And pharma, as a theme, Dharmesh came back into the fray just about a month and a half,
16:10 two months back, right?
16:11 So what, according to you, would be the best way to play the space?
16:15 And what are the top picks for you?
16:19 I mean, hospitals should be the best way to play this space.
16:22 Because as far as drug producers are concerned or the pharma space, the prices have gone
16:27 up too fast.
16:28 I mean, they are now fully priced.
16:29 And even one standard deviation on the valuation of multiples, they are trading on the higher
16:34 side from the mean multiples where they used to trade.
16:37 I don't think these valuation multiples will be justified in the near future for the drug
16:44 producers based on just the multiples where they are.
16:48 Because hardly they would get a growth of around 10 to 12% on top line.
16:52 Margins being stable and that will translate to around 12-13% kind of a bottom line growth.
16:57 Whereas these are quoting at anywhere between 20 to 30 times per year multiple over year
17:02 forward.
17:03 So there I think correction or time correction is overdue.
17:06 At the Diagnostic Center, we spoke about metropolis.
17:09 But I think where the more juice for the more effective valuation gap is there in the hospital
17:15 segment.
17:16 And Apollo Hospital segment is a topic because the different verticals where they are like
17:21 online pharmacy and the online consultation part is going to pick up in a big way and
17:25 that will translate to a very healthier operating profit in the even on the bad side.
17:31 Around 40 to 50% kind of contribution is going to come from that.
17:35 So I still believe if you are willing to hold on for two years, Apollo Hospitals can be
17:40 a developer firm here just based on not only the hospital part of the business, but also
17:44 the online consultation and the online pharmacy part where they are going very fast.
17:51 We've got a question from Victor.
17:54 And look, we're going back to HDFC Bank.
17:57 But this is an important point which we didn't raise, I think, on the fundamentals.
18:01 You expect that it will moderate a little bit on the valuation side, right, Dharmesh?
18:07 If I remember what you said correctly, at what point does it become attractive again
18:12 as a buy?
18:14 See, for it to become very attractive, either the valuation should drop very drastically.
18:20 Because when we select a company, it's for the growth trajectory when we are buying and
18:26 not for the margin of safety, just that it has dropped below the mean value of multiple.
18:31 And the original mean is not the kind of a play we enter.
18:34 That's more of a trading play, not an investment play.
18:36 So my thesis on selling HDFC, exiting from HDFC Bank was just on that the growth is going
18:43 to moderate in a significant way.
18:45 So with that, valuation will also come down.
18:48 And sometimes market does excesses when it moves over or comes down.
18:52 So that excess point will definitely be there in HDFC Bank itself.
18:55 So just for a trading perspective, somebody is looking at, so anywhere between 1.4 to
19:01 1.5 times price to book when the valuation multiple is there, that is a good time to
19:05 play or trade on that.
19:06 But if you're looking at a long-term compounding, the way it has done for the last 20 years,
19:11 for that, I think there are better opportunities.
19:14 Okay.
19:15 We've got a question on Ethos Limited.
19:19 And I believe that we've got Amit who's asking about the long-term trends on the charts.
19:26 So Nilesh, what is the long-term view for Ethos Limited?
19:29 And what is the buying range according to you?
19:32 Well, if you look at the technical chart, this stock has been in a trend and currently
19:38 trading somewhere near about 1755.
19:40 The only concern is that it's likely liquid counter.
19:44 We usually don't see much of a volume in this particular space.
19:47 And looking at the overall setup, I feel the momentum looks strong and we can expect further
19:51 move to continue towards 1850 to 1900 in the near term.
19:54 So if somebody is already holding the long position, can keep a trading stopper below
19:58 1660 and stay put for the target of 1850 to 1900.
20:02 If somebody is looking to make a fresh entry, I would rather suggest to buy on declines
20:06 and wait for some meaningful correction at current level and buy in the range of 1680
20:11 to 1660.
20:12 The major support for this particular counter is placed at somewhere near about 1570.
20:17 Okay, fair enough.
20:18 Akhilesh on YouTube has got a question on LIC Housing Finance.
20:23 What's the view Dharmesh on this particular counter?
20:26 And I'm actually curious because again, we're talking about HDFC as the leading player in
20:33 the mortgage space, moving into HDFC Bank.
20:36 A lot of people talked about synergies at that point.
20:38 So I was actually wondering why you're saying there are questions about growth.
20:42 I know the point that you're making about corporate side, but in any case, in the lending
20:48 space, most banks are anyway transitioning to the retail side and unsecured is growing
20:53 in a big way.
20:55 Why are you saying that there are concerns about growth?
20:57 And what's your view on LIC Housing Finance?
20:59 Yeah, so first question is like the unsecured part of the business.
21:04 So as far as unsecured part of the business is concerned, the loans for lending is very
21:08 stringent when it comes to HDFC Bank or SBI because they are more strict as far as giving
21:16 the lending is concerned.
21:17 And that's the reason why you get the borrowing costs for the people who is taking the loan
21:23 is lesser when it is from HDFC Bank or SBI.
21:27 But unsecured lending is more to do with the high risk kind of lending environment.
21:32 So the people who come for that, they are ready to pay more, but they can't service
21:38 the kind of requirement which these banks are looking for.
21:42 So that is the reason why we are seeing most of the NBFC space are growing at 50%, 70%
21:50 kind of growth we are witnessing in the unsecured part.
21:54 So that would be a challenge for a bank like HDFC to get that market in place.
22:00 So that was my only concern out there.
22:02 Credit card business is one business which has picked up well, but credit card has its
22:05 own limitations as far as unsecured lending is concerned.
22:09 So that's one of the way of doing this business.
22:12 Again, I mean, what we have seen is a bigger traction in SBI or Axis Bank credit card business
22:17 growth rather than HDFC Bank.
22:20 So that aggression, I mean, their own set of parameters which they have built in for
22:25 giving the loans will be a key challenge or will be locking their growth for the unsecured
22:33 part.
22:34 Coming to the next question, like LIC housing finance, companies like that in the NBFC space.
22:40 So today we have seen some traction out there.
22:43 And these companies are likely to do well.
22:45 The entire basket is still likely to do well, both of the affordable housing segment side
22:49 as well as the mid housing segment side.
22:53 So what we have seen is most of the booking coming on the premium segment where these
22:57 companies don't have a much larger stake.
22:59 But affordable with the current employment and my own sense of interest, it is picking
23:04 out, it will be coming soon for our country as far as India is concerned.
23:08 So there again, the affordable housing segment will pick up.
23:11 So there, I mean, Califino also remains the top pick out there, followed by BNB housing
23:17 and LIC housing finance.
23:18 OK, let me get a quick view on the technicals and then we'll shut for today.
23:24 What's the view, Nilesh, on LIC housing finance?
23:27 Well, overall, in the NBFC space, the view is slightly on a positive side from a short
23:34 term point of view.
23:35 So LIC housing finance in last few weeks, we have seen a continuation of a higher than
23:39 average of formation.
23:40 Structure looks strong.
23:41 And if we take a view of near to medium term, then we can expect further upside move to
23:47 continue towards 500 to 520.
23:48 So purely from trading point of view, the stock has the potential to move towards 470
23:53 to 480.
23:54 From position point of view, we can expect further move to continue towards 550.
23:58 One can keep a stock below 440.
24:01 And apart from that, within this space, the other stock that we are liking is M&M Finance,
24:05 where today only we have seen a fresh breakout from a consolidation.
24:08 So this particular stock can be bought at current level for the target of 330 to 340.
24:13 Stock price can be placed below 300.
24:15 OK, fantastic.
24:16 Nilesh, Dharmesh, thank you so much for joining in and for giving us all of those answers
24:20 today and viewers who've got your questions answered.
24:23 I hope that this has helped you.
24:26 And if you've got more questions, we'll be live every day of the week at 11.30.
24:30 So tune in then.
24:31 Thanks so much for watching.
24:33 This is BQ Planet.
24:34 Thank you so much.
24:35 Thank you.
24:35 [MUSIC PLAYING]
24:39 [MUSIC PLAYING]
24:42 [MUSIC PLAYING]
24:45 [BLANK_AUDIO]