- Private bank or PSBs: Which is a better bet?
- Top sectors to bet on
Samina Nalwala in conversation with Carnelian AMC's Vikas Khemani on 'Talking Point'.
- Top sectors to bet on
Samina Nalwala in conversation with Carnelian AMC's Vikas Khemani on 'Talking Point'.
Category
📺
TVTranscript
00:00 Welcome back, you're watching Talking Point and we have with us a very special guest,
00:17 Vikas Khimani of Carnelian Capital Advisors joining us.
00:19 Hi Vikas, thank you very much for joining us, thank you for waiting for us.
00:24 We were talking, we were in conversation with the manager of Nalco after extended hiatus
00:29 that they've been on, so thank you for staying with us.
00:32 Vikas, how are you feeling about the markets right now?
00:34 You know, it was only last week I was thinking that with the budget behind us, with the election
00:39 outcome almost a given, earning season also now technically behind us, the markets would
00:45 be lacking triggers and would probably go into some sort of a price or time correction.
00:49 And of course then we had Thursday and Friday when the markets rallied up.
00:53 Do you feel like there is enough reason to buy right now or is it one of those markets
00:58 that you stay on the sideline and wait for an opportunistic time?
01:00 Thank you very much.
01:03 First of all, I would request your team to get the name of my firm right.
01:06 It's Carnelian Asset Management and Advisors.
01:08 I've corrected them many times.
01:10 Secondly, I think coming to your point on the markets, I think markets are, you know,
01:18 I mean, we've had many conversations on that.
01:23 Depends on what's your time horizon.
01:24 I'm quite optimist about market from medium to long term perspective.
01:28 We are seeing a good consolidation in the market.
01:32 Budget I think was not expected to be any major event.
01:36 Election concerns are behind.
01:37 So I think corporate earnings seems to be all right.
01:40 So I think broadly market has no major risk per se.
01:44 At the same time, I think it will take its time to get the trigger in terms of upside.
01:51 So I think it will be a slow and steady, but if you're asking my view from a medium to
01:55 long term perspective, I think we are in a very, very good, positive bull market.
02:01 Short term, very hard to predict.
02:02 Yeah.
02:03 Sorry, Vikas.
02:04 I don't know why they've got that name of the company wrong, but we've notified them.
02:08 I promise you this will not happen again.
02:11 Talk to me about sectors.
02:12 And I know in the last time we spoke, you seemed quite optimistic on banks and IT.
02:17 Now banks are also seeming to be a beast in themselves, right?
02:20 You've got the likes of an HDFC bank that are grossly underperforming for reasons specific
02:25 to the bank.
02:26 PSBs have been on a tear, at least in the last couple of weeks.
02:31 Where is the advantage sitting in your opinion?
02:34 Value with the likes of an HDFC or opportunity with the PSBs?
02:40 I think we've been holding PSBs for last almost close to a year.
02:47 We think that PSB is a very big rewriting story in making.
02:51 Most of the PSBs are still reasonable valuation or I would say rather cheaper valuation given
02:56 the transformation they are going through.
02:58 And I think that should continue for some time.
03:01 You know, stock specific, always you have to avoid.
03:04 We have not owned HDFC bank for some time and I guess they will have some more time
03:07 to go before the old integration related pains get over.
03:11 But it's a great bank, no doubt about it.
03:13 So we keep monitoring, but we haven't bought HDFC bank.
03:16 So I think banking you have to look at from a structurally long term perspective that
03:21 Indian economy cannot go from here to $10 trillion without banking sector doing well.
03:26 So banking is the sector which will do well.
03:28 It might have intermittent consolidation, it might have intermittent phases of no return,
03:35 but that's the thought of any sector.
03:38 Structurally speaking, I'm very, very positive on banking and financial services over next
03:42 decade.
03:43 PSBs, Vikas, are you adding to right now?
03:46 I did hear you said that you've had a whole lot of them for the last one year.
03:49 So you're of course bearing the fruit of it right now.
03:52 But if somebody had to ask you anything that you're adding incremental capital to, which
03:58 ones would those be?
04:01 You know, PSBs, like I said, that there are three major reasons why we are like this.
04:07 If you see in all the PSBs, earlier there were three problems, technology, asset quality
04:11 and governance.
04:12 Asset quality got sorted out over the last three, four years as the provisioning happened
04:16 and economic recovery, revival has happened.
04:18 So that's behind us.
04:19 In fact, you are seeing more recovery from the provisions.
04:22 Over the last many years, they picked up the CEOs for the banks, which are very, very good,
04:32 capable.
04:33 And they're driving the transformation in the banks.
04:35 And lastly, technology.
04:36 About a year, about eight, 10 years ago, technology was a big play.
04:41 Now it is plug and play.
04:43 So most PSBs have invested a significant amount of money into technology.
04:46 So the differentiation between private and public has narrowed down drastically.
04:50 So having fixed all these three things, I don't think there's much difference of case
04:55 given their footprint, given the Casa franchise, they should trade where they are.
04:59 And I still think that there's a lot more value over the next couple of years.
05:03 You will see them trading at one and a half time book and maybe more, like how SBI was
05:09 the lead earlier from half time book to almost close to two time book.
05:12 Similarly, the other PSB banks also will walk through that journey.
05:17 You said you've got HDFC on the watch.
05:19 You've still not gone out and touched it, but you would be tracking it closely.
05:23 Now what are you tracking here?
05:24 A commentary from the management, a revival in terms of earnings, growth, guidance, or
05:30 is it a price correction that you're waiting for here?
05:32 Not really.
05:33 I think HDFC has been going through a lot of internal shuffles and integration also
05:40 going on.
05:41 There's a lot of delays, deposits.
05:43 So there is an overhang of the integration.
05:45 So we will watch out for that.
05:47 I think, in my opinion, at least it will be a year away from where we think it is not
05:52 going to happen in a hurry.
05:54 Not because it's a great bank, great institution, but from an investment point of view, we would
05:58 like to see a clear trajectory.
06:01 And I think if you compare, and investing is all about comparing with other alternative
06:05 options.
06:06 At a similar valuation where you're getting other alternative options like ICICI Bank,
06:10 when there are no kind of overhangs, it's better to play there.
06:13 I mean, you might get still similar returns, but it has lower risks.
06:18 So I think it's not against HDFC Bank.
06:20 It's that we find the similar alternatives adjusted for risk better.
06:25 That's the only thing.
06:26 So we will still be watching out over the next couple of years.
06:30 As you know, with the earnings and with auto, we saw a theme and the cases were re-rating
06:36 largely were all about EV, right?
06:38 It's all about the EV segment.
06:40 Of course, the Maruti's, the Tata Motors, M&M last week.
06:43 What is your preference here?
06:45 An electric vehicle or an ancillary?
06:47 There is opportunity in the right all space.
06:51 I think we own Tata Motors, which is, as you know, is leading.
06:55 It's a great play in PV, it's a great play in EV, it's a great play in commercial vehicle.
07:00 So we've been very, very bullish on that.
07:02 We've been owning Mahindra and Mahindra, which again is a fairly multipurpose play, which
07:06 also has a significant EV play.
07:08 So I think, you know, from those we've been owning these and there are many auto banks,
07:13 which we've been owning, which benefit from this cycle.
07:17 So the segment is coming after a long in and growth phase for the last one, one and a half
07:23 years.
07:24 And whenever such kind of turn happens, it typically at least last three to five years,
07:27 if not more.
07:28 So I think this uptick in the auto cycle led by the growth in the recovery of economic
07:32 recovery and increase in the incomes.
07:34 Auto is the one which will benefit a lot also from the infrastructure development.
07:38 So, you know, we've been kind of positive on some of the names which I mentioned to
07:42 you.
07:43 Right.
07:44 Vikas, also, I know you're optimistic and have been on the MidCap IT pack.
07:49 Now again, I think the two broader themes, not just in the markets, but in the economy
07:54 have been EV and AI.
07:56 Now this AI is still early stages, you know, it's uncharted territory for a lot of these
08:01 players.
08:02 So would you bet on the tech companies who have an AI exposure, AI play, or would you
08:07 be going with, you know, tried and tested large companies who will figure their way
08:13 out?
08:14 I'm a little confused of how one approaches and plays and, you know, takes advantage of
08:18 this AI rush.
08:19 If you ask me, you know, you can't segregate necessarily IT from AI.
08:26 Incrementally, it's like this, you know, earlier there was this thing, rush to make, you know,
08:31 businesses with a new tech.
08:32 But if you see today, every business has to be tech enabled, same way every technology
08:37 services have to be AI enabled.
08:39 That transition will happen.
08:40 And in the process, market somehow, you know, gets excited with the buzzwords.
08:43 Today, I don't think any technology services company can afford to say, I don't have AI
08:48 capability.
08:49 It is becoming an integrated part of it, like how digitization and cloud migration was there,
08:54 say for example, eight, nine years ago.
08:56 Right.
08:57 So you have to look at companies which are able to just adapt to the emerging trends
09:02 and are able to grow faster than.
09:04 So in our attempt has always been to buy companies which can grow 20% plus, you know, and which
09:10 are in high growth areas of that.
09:12 And like ER&D is a very, very, very high growth area within IT services.
09:17 We've been very bullish and we've been, you know, we've had many successful investment
09:21 in that space.
09:23 So like this, we keep on looking for those ideas.
09:25 And I think the technology sector per se will do very well.
09:28 Today our exports are in around $220 billion.
09:32 This number will go to $500 billion over the next, you know, 10 years.
09:36 So the sector will grow.
09:37 And within that, our job is to identify companies which can grow faster, whether it is in AI
09:41 or ER&D.
09:42 Because what are your top three stocks or sectors that you're incrementally still adding
09:47 to at this stage?
09:48 See, again, you know, you think, I mean, our entire portfolio right now we are adding because
09:55 as we get money, we keep buying.
09:57 So it's not that, I mean, I can't comment one or two names, but I can tell you, if you're
10:04 bullish on a market from an 18 year perspective, there's no way, you know, you will not buy.
10:09 You might optimize for one or two, you know, quarter or month or, you know, those kinds
10:13 of things.
10:14 But structurally speaking, like I said, I find value in banks, including PSUs.
10:18 I like find value in IT services company.
10:20 I find value in manufacturing.
10:21 There are many places, despite such a good run, you know, we find interesting and, you
10:25 know, investable at this point in time.
10:27 We find reasonably now incrementally we've been, we've never invested in last four years
10:31 on consumer names, right?
10:32 Now we're beginning to look at which other consumer names will benefit while we have
10:36 not bought anything yet.
10:37 But, you know, we've been looking in that names.
10:40 So opportunities do keep power sector we bought, you know, about two quarters ago, which has
10:44 done very well.
10:45 And I still think there's a lot more value given the structural over next eight, 10 years
10:49 run in the power sector.
10:51 That's also especially the conventional power sector.
10:55 So there is a value in the market to be very different.
10:57 I don't think while there are pockets of over exuberance, over valuation, for sure, you
11:02 can't deny on that.
11:03 But we are able to find ideas within the space, which I mentioned to you.
11:07 Right.
11:08 One very quick question.
11:09 I know you keep getting liquidity into your fund and hence you need to go on and allocate,
11:12 but you also do have the ability to taking a cash call at times, right?
11:17 Are you going in staggered with fresh money or are you and if you are staggering it, what
11:21 is the sort of staggering you're doing?
11:23 And for existing portfolios, have you done any sort of a cash call at this stage?
11:27 No, we haven't taken any cash call because we think that market still has a lot of legs
11:32 to go.
11:33 But whenever a new money comes in, what we do is we deploy based on idea specific.
11:38 So out of my 20 stocks in portfolio, let's say there'll be 8, 10 stocks which are very
11:41 convinced we'll buy immediately.
11:43 Some stocks will probably try to wait, optimize for a couple of weeks or so.
11:48 If suppose let's say they're not coming down, we replace with them the new stock.
11:51 So the philosophy we follow is for every stock in our portfolio, we have buy zone, no buy
11:56 zone, sell zone.
11:57 So once you move out of buy zone, then we kind of replace it with some other stock.
12:01 So our approach, and I can tell you, we are able to find ideas which we are convinced
12:05 about it.
12:06 So there's no shortage of ideas where we think that money can be made.
12:10 But I can tell you we are not in a situation where most of our portfolio is viable right
12:16 now.
12:17 Short of it is the money is still to be made at the market, still trade below their peak
12:21 valuation.
12:22 So of course, you clearly have a good eye for picking up those winners.
12:26 Vikas, we'd have loved to chat with you longer, but hopefully we'll catch you soon.
12:29 Thank you.
12:30 Thank you.
12:31 Thank you.
12:31 (dramatic music)
12:34 [music]