- Is 2024 the year for banks?
- Are the valuations in IT sector justified?
Niraj Shah in conversation with CITI's equity research team on 'Talking Point'.
______________________________________________________
For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia
Visit NDTV Profit for more news: https://www.ndtvprofit.com/
Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports
Follow NDTV Profit here
Twitter: https://twitter.com/NDTVProfitIndia , https://twitter.com/NDTVProfit
LinkedIn: https://www.linkedin.com/company/ndtvprofit
Instagram: https://www.instagram.com/ndtvprofit/
#ndtvprofit #stockmarket #news #ndtv #business #finance #mutualfunds #sharemarket
Share Market News | NDTV Profit LIVE | NDTV Profit LIVE News | Business News LIVE | Finance News | Mutual Funds | Stocks To Buy | Stock Market LIVE News | Stock Market Latest Updates | Sensex Nifty LIVE | Nifty Sensex LIVE
- Are the valuations in IT sector justified?
Niraj Shah in conversation with CITI's equity research team on 'Talking Point'.
______________________________________________________
For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia
Visit NDTV Profit for more news: https://www.ndtvprofit.com/
Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports
Follow NDTV Profit here
Twitter: https://twitter.com/NDTVProfitIndia , https://twitter.com/NDTVProfit
LinkedIn: https://www.linkedin.com/company/ndtvprofit
Instagram: https://www.instagram.com/ndtvprofit/
#ndtvprofit #stockmarket #news #ndtv #business #finance #mutualfunds #sharemarket
Share Market News | NDTV Profit LIVE | NDTV Profit LIVE News | Business News LIVE | Finance News | Mutual Funds | Stocks To Buy | Stock Market LIVE News | Stock Market Latest Updates | Sensex Nifty LIVE | Nifty Sensex LIVE
Category
📺
TVTranscript
00:00 [MUSIC PLAYING]
00:03 Thanks for tuning into today's Talking Points, a special one,
00:14 because we've got the City Think Tank to try and--
00:17 or to analyze what Q3 and the nine-month results
00:21 have thrown up for India Inc. and what could calendar year
00:25 '24 or FY '25 hold in store from an earnings and evaluation
00:31 perspective for the market at large and for specific pockets.
00:34 Joining me on the show today, Surinder Goel.
00:37 He's head of City Research India.
00:40 Kunal Shah, Saurabh Bhanda, and Atul Tiwari
00:43 tracking banks, oil and gas, telecom,
00:46 as well as industrials, electric utilities, and property,
00:49 respectively.
00:49 Gentlemen, all of you, thank you so much for taking the time
00:52 out.
00:52 I really appreciate you being with us in our studios.
00:55 Surinder, if I can start off with you, end of Q3,
00:59 are you guys more upbeat about the earnings reportage
01:02 based on what was reported and the con call analysis
01:05 that you would run for quarter four,
01:06 or are you a bit circumspect?
01:08 Yeah.
01:09 So thanks for having us on the show.
01:11 So to begin with, more than the earnings,
01:14 we look at the upgrade to downgrade ratio, which
01:18 again was positive both for FY '24 and FY '25
01:22 within our coverage.
01:24 So that kind of tells you that things are progressing
01:27 in the right direction.
01:29 And if you look at the consensus NIFTY earnings forecast,
01:32 it has pretty much remained unchanged through the year.
01:35 If you go back historically, we have started off high
01:38 and then there have been downgrades.
01:40 For most years, if you take the last decade,
01:42 barring one or two years, that's been the usual trend.
01:45 So in that context also, the earnings
01:46 are holding up pretty well.
01:48 And it's a fairly good level of earnings also.
01:51 So as we go forward from here, there
01:53 is generally an expectation that we still
01:55 have around a 14% earnings CAGR for NIFTY
01:58 over the next couple of years.
02:00 So to that extent, I would say that sentiment
02:02 has been pretty upbeat.
02:04 But this quarter's earnings kind of supported that.
02:07 And even the upgrade downgrade ratio, which I spoke about,
02:10 everything kind of pointing to things
02:12 trending in the right direction.
02:13 Not bad.
02:14 Good to hear.
02:15 Where is it that there has been the largest upgrades
02:19 to your mind?
02:20 Let's talk about the good news first.
02:22 And where is it that some of that
02:23 might be priced in already?
02:25 Yeah.
02:26 So if you look at sectors like autos,
02:29 that is where a significant upgrade came in.
02:31 And again, a lot of it is driven by margins.
02:35 So the mix and then in turn margins.
02:37 So that was one.
02:39 And again, we have Saurabh here who can talk about energy.
02:42 Those numbers have come in fairly strong.
02:45 Industrials is the other one where, again, certain stocks,
02:48 et cetera, have done well.
02:50 So these are sectors where there have
02:52 been fairly good upgrades.
02:55 In terms of downgrades, I think financials definitely
02:58 at the margin, things have been a little soft.
03:00 And again, Kunal is here.
03:01 He can talk about it.
03:03 So there, I think we have seen some softness.
03:05 And again, materials is again some select materials,
03:08 I would say, not broad based.
03:10 There we have seen some downgrades.
03:12 Other larger sectors, I would say,
03:14 pretty much kind of the same trajectory.
03:16 No, no big changes.
03:17 Just a quick follow up to that before I get
03:19 in the other gentleman in.
03:20 What about where all do you reckon some of these upgrades
03:24 are priced in or that the downgrades have not necessarily
03:29 made the stocks too unattractive because the prices may already
03:32 have been baking some of the weakness?
03:34 Yeah.
03:35 So for example, if you look at financials, right,
03:38 and again, banks specifically within financials,
03:42 if you look at the valuations in the context of history,
03:45 the valuations are already pricing
03:48 in some of this weakness.
03:50 So if you look at versus five years or versus 10 years,
03:54 banks are at a discount to those means and averages, which is not
03:58 true for the broader market.
03:59 So I would say there, I think some of the weakness
04:02 is priced in.
04:03 I think the question which people are debating
04:04 is how much of this is like a two, three quarter thing?
04:07 Or is it kind of longer drawn out?
04:10 So that's one sector where I think a lot is kind of priced
04:14 in.
04:15 In terms of some of the sectors like industrials,
04:17 and again, select pockets within industrials, for example,
04:21 yes, numbers are strong, but then the multiples
04:23 are also quite elevated.
04:25 OK.
04:25 So to that extent, I think there is a fair bit of optimism
04:28 already priced in.
04:30 And in general, I would say, I think
04:32 when we talk to investors also, valuations
04:34 is something that comes up in almost every discussion.
04:37 Because the market at 20, 21 times
04:40 is definitely higher than where it has historically traded.
04:43 And to that extent, the premium to other emerging markets
04:46 is also significant.
04:48 So to that extent, that's something which is there,
04:50 like front and center in every investor conversation.
04:53 And that is something that people are also
04:55 monitoring quite carefully.
04:56 Got it.
04:57 And I think each of those subsets,
04:59 we'll get each of them to cover as well.
05:01 I'll go in the chronological order, or the order of seating.
05:03 Kunal, can I start with banks?
05:05 Clearly, the space which is, to most people who are invested,
05:11 befuddling them as to, boss, [NON-ENGLISH SPEECH]
05:14 But no, the larger point being, what's
05:17 happening to these banks in terms of their earnings
05:20 performance?
05:21 And is it the supply side issues or the supply of paper
05:25 which is keeping the prospects a bit subdued
05:30 under the current context?
05:31 So when we look at it, maybe in terms
05:34 of how they actually performed with respect to Q3
05:37 as well as the nine months, headline earnings were better.
05:42 But still, if we look at qualitatively,
05:45 few of the trends which are worth highlighting,
05:47 one is with respect to deposit growth.
05:50 And that was underwhelming this quarter.
05:52 And some moderation out there, even on the loan growth side,
05:55 compared to what we had seen in Q2.
05:59 Secondly, when you look at it, some inch up
06:01 on the retail slippages, not for all the banks,
06:04 but in some pockets, we have started
06:06 to see increase in the delinquency levels.
06:09 And that was reflected in the slippage run rate
06:12 for this particular quarter.
06:13 So maybe on qualitative aspects, it didn't go that well.
06:19 And that's the reason there were some downgrades which have
06:21 happened within the sector.
06:23 If you look at it, there is definitely
06:25 the supply side constraint.
06:26 When we look at it even from banks' balance sheet
06:28 perspective, now many of the banks
06:32 are setting their narrative and anchoring the growth
06:36 towards the deposit growth.
06:37 There is a tightness in the liquidity.
06:39 And there are challenges in terms of deposit mobilization.
06:43 And if you are trying to anchor the entire asset
06:46 growth towards the liability growth,
06:47 some banks are definitely facing the problem on the growth side.
06:51 But still, in terms of the earnings management,
06:53 the focus still continues to be there.
06:55 There was not too much of a disappointment on the margin,
06:58 I would say, even in the last quarter.
07:00 Even the outlook we need to see as to how it pans out.
07:04 There are limited levers for margin improvement from here
07:06 on.
07:07 So that is the risk which is there.
07:08 You're being kind here, right?
07:09 You're talking about margin improvement.
07:10 You're being kind to them.
07:12 So in the sense, I would say maybe obviously the levers are
07:15 not there at all for the improvement.
07:17 In fact, there is a downside.
07:18 But that's baked into the estimates.
07:20 I don't think maybe there will be too much of a disappointment
07:22 which will come in.
07:24 So that's where we are seeing with respect to the margins.
07:27 And there are, I would say, operating leverage delta,
07:31 which is still available, which can support the earnings
07:34 growth getting into FY25 and FY26.
07:37 Got it.
07:37 I'll talk about NBFCs later.
07:38 But just a quick follow up on banks,
07:40 and which is this, that when one looks at the data,
07:42 obviously, private banks have had an issue not just
07:45 in the last six, nine months, but relative to PSU banks
07:48 as well, last one year, three years, maybe even five years
07:51 if I'm not wrong.
07:52 As a benchmark index, the PSU banks
07:54 have outperformed the private banks.
07:56 From a risk/reward perspective, is there
07:59 merit in trying to own an HDFC?
08:01 I don't know what your top list is.
08:03 Is there merit in owning an HDFC bank access, ICICI, Kotak,
08:06 et cetera?
08:07 Or would you believe that maybe a basket of PSU names,
08:10 or one or two of those PSU names,
08:11 whichever you track, if you do, might give a better bank
08:14 for the buck even now?
08:15 So interesting question.
08:16 And that's what is there in everyone's mind,
08:18 private versus PSUs.
08:20 PSUs are generally cyclical.
08:22 Private would always be more structural.
08:25 When you look at it, PSUs, why they are doing well,
08:29 in fact, in terms of the entire corporate asset quality stress
08:32 that is behind them, they are seeing a lot of benefit
08:35 on the recovery side, which is helping the overall earnings
08:38 growth.
08:38 And that's where, when we look at it in terms of the ROA
08:41 profile coming from the lows, we are definitely
08:44 seeing an improving ROA profile.
08:46 Compared to that, if you look at it, private banks,
08:48 they picked out in terms of the margins, in terms of ROA
08:51 in Q4 of last year.
08:52 And since then, we have just been seeing the moderation
08:55 in the ROA profile compared to the improving
08:57 profile for PSU banks.
08:59 And with respect to growth, given
09:02 that there are constraints on the deposits for the private
09:04 banks, there are maybe apprehensions with respect
09:08 to sustaining similar kind of growth,
09:10 even though it's higher than the industry average.
09:12 While PSU banks coming from a low base,
09:15 they were much lower than the industry average.
09:16 And given that there are no constraints on the CD ratio
09:19 for PSU banks, because they were getting deposits
09:22 at a much better rate compared to their loan growth,
09:25 there is still a delta which is available to take
09:28 some kind of a market share from private banks in the interim
09:31 or in the very near term.
09:32 So looking at both the aspects in terms
09:34 of the improvement in the ROA profile,
09:36 along with growth being slightly better compared
09:38 to what they have done in the very recent history,
09:42 there is maybe, I would say, positive sentiments
09:45 towards PSU banks.
09:46 But given where they are trading today in terms of the ROA
09:49 and ROE profile which they can generate
09:51 and the valuations which have got re-rated,
09:54 we still believe private banks over the next 12 to 18 months
09:58 should do better compared to that of PSU.
10:02 And your top list being?
10:03 So we like ICICI, IndusInd, and HDFC.
10:07 OK, perfect.
10:08 Great.
10:09 Thanks.
10:09 We'll come back on the NBFC's piece as well.
10:11 But Atul, can I just quickly, before we take the break,
10:14 invoke a conversation with you on industrials?
10:17 Because if I'm not making a gross error
10:21 by including a big result boy that
10:23 came in yesterday as a part of the industrials family,
10:26 what's happening here?
10:27 Surendra had a point to make that some of these
10:29 are very well priced in.
10:31 But the numbers in select cases just continue to do very well.
10:35 The order flows look solid.
10:37 How do you look at the bucket from a quarter three perspective
10:39 and from what could happen going ahead?
10:41 Yeah.
10:41 So see, the quarter three, across the board,
10:44 big or small companies generally had good to very good order
10:48 inflow growth.
10:49 And that continues to reflect the strength of CapEx recovery
10:52 in India.
10:53 So I think that trend we can see across different companies,
10:58 big and small.
10:59 Obviously, within that, some of the more niche MNC names
11:03 tend to be much more dominant in their space.
11:06 And as a result, when ordering happens in that space,
11:09 their order inflows get impacted much more disproportionately.
11:14 So I think some of that is playing out.
11:15 And some of it is obviously the scarcity factor,
11:18 that if you have technology and you
11:19 are dominant in a particular space
11:21 and your orders are very strong, then stocks
11:25 can react quite strongly.
11:26 So I think the way most investors are looking at
11:30 is that, yes, in some pockets, valuations are quite punchy.
11:35 But as long as orders are growing at 20%, 25% plus,
11:39 and ROCs are high, and the cash flows are coming through,
11:43 these valuations probably can sustain.
11:45 One of the-- I'm talking about ABB per se,
11:47 but some of the others as well, or some
11:50 of the others in the industrial space per se.
11:52 The order inflow was much higher than what was anticipated.
11:56 They've improved their return ratios quite dramatically
11:58 as well.
11:59 So are these valuations prohibitive
12:02 for a fresh investment?
12:03 Or do you reckon that as private CapEx comes in full shape
12:08 and form, if it does--
12:09 Surendra might have some thoughts,
12:10 you might have some thoughts there--
12:12 but with an assumption that it does,
12:14 can these only stay elevated in terms of valuations,
12:20 and therefore the stock prices do well,
12:22 because earnings growth will kind of make up
12:24 for the punchy valuations?
12:25 Yeah, so say, for example, we don't cover ABB,
12:27 so we can't comment on that.
12:28 But like, say, in MNC, industrial space,
12:30 we cover Cummins India, which had an equally strong revenue
12:34 and order inflow growth.
12:35 And we have a buy rating on that one,
12:36 despite substantial re-rating in P multiple.
12:40 Because it's a question of where you are in the cycle.
12:44 Right?
12:45 So if market senses that the cycle is peaking out,
12:48 and then probably these valuations
12:51 will become prohibitive.
12:53 But at this point of time, when you
12:55 can see that you are probably still
12:57 in the first half of this CapEx cycle,
13:00 and with probably a few years of recovery ahead of us,
13:04 I really doubt that people are going
13:06 to bother too much about valuations
13:08 at this point of time.
13:09 So for example, on Cummins, we have been quite positive,
13:13 and it has re-rated, and we remain positive.
13:15 Saurabh, clutch of things out there.
13:20 Surendra mentioned how one of the big surprises
13:23 of the quarter was energy.
13:24 Can you talk a bit about whether it surprised you as well,
13:27 relative to assumptions that you had made?
13:29 And what within that reportage surprised you?
13:32 And what's the implication thereof, thereby,
13:35 for the quarters to come?
13:37 OK.
13:38 So if you look at the downstream companies, which
13:40 are the oil marketing companies, I
13:42 would say all of them have, by and large,
13:44 been reporting pretty strong numbers through the year.
13:48 And there have been consistent earnings upgrades by us,
13:51 as well as the streets.
13:52 So I would say maybe around 6 to 12 months back, in general,
13:57 people were fairly conservative and negative on the stocks,
14:00 because fiscal '23 was quite weak for them.
14:03 They were making losses.
14:05 There were concerns around pricing and government
14:07 intervention.
14:08 The whole thing has now flipped.
14:09 So we've seen a massive spate of earnings upgrades,
14:13 especially in that space.
14:16 The stocks have obviously reflected that.
14:18 There's been a massive re-rating.
14:20 But we believe still there is room for the stocks
14:23 to go up further from here.
14:25 So we are still positive on a couple of these names,
14:28 stocks like BPCL, HPCL.
14:30 We still have buys on them.
14:32 If you look at fiscal '25 earnings,
14:35 the outlook for now seems fairly OK.
14:37 Crude is range-bound.
14:40 It's gone up a bit, close to $80, $85.
14:43 But our general view is it stays in the 70s,
14:46 80s, which is pretty OK for the marketing
14:48 side of the business for these companies.
14:50 On refining, our view is positive.
14:52 We believe refining margins stay at mid-to-peak cycle levels,
14:56 at least for this year.
14:57 So the earnings outlook, even for FY '25, is fairly all right.
15:00 And it opens up room even for upside risks.
15:04 So I would think it makes sense to still remain positively
15:08 inclined in these names.
15:11 From a stock market perspective, obviously,
15:13 they've run up a lot in a very short space of time.
15:15 So it's quite natural to maybe see some profit-taking.
15:19 We wouldn't be surprised.
15:20 But we would be looking to buy into any dips that happen.
15:24 Interesting.
15:25 A couple of your peers might have a different view.
15:27 But it's great to know how you're thinking about it.
15:29 What about the non-OMC pack?
15:32 Yeah, so in that, you can look at maybe the upstream names
15:35 and say the gas names.
15:36 So on upstream, ONGC is one stock which, on an absolute
15:40 basis, has gone up.
15:41 But it has relatively, say, underperformed compared
15:44 to the downstream names.
15:46 So we are positive there.
15:47 Now, in ONGC, you don't see too many earnings upgrades
15:51 because the realizations tend to be broadly fixed at $75 oil,
15:56 65, 6.5 gas.
15:58 But in ONGC, it could be at an inflection point
16:01 as far as its production trajectory is concerned.
16:04 So ONGC, last 10, 12 years, its production
16:07 has been declining at like a 2% CAGR.
16:10 That's at the cusp of turning around.
16:12 And in fact, we might see that this quarter as well.
16:15 So even though earnings are broadly in line,
16:18 because production growth could start
16:20 being positive for ONGC, we remain buyers on that stock.
16:24 It's still one of the cheapest stocks on a price-to-book
16:26 basis.
16:26 It's still at only one times.
16:28 It should give you 13%, 14% ROEs.
16:31 On the gas side, we have slightly stock-specific views.
16:34 So we are positive on names like Gale, MGL, IGL.
16:39 Gale, again, the stock has done well.
16:41 But a lot of their segments are now performing pretty well.
16:45 And on the transmission side, there's
16:48 been regulatory re-rating.
16:49 Tariffs have moved higher.
16:50 And volumes are picking up because gas consumption
16:52 is picking up in India.
16:54 On trading, which used to be a concern for them in the past,
16:57 that's been doing fairly OK.
17:00 On petrochemical side as well, they've
17:02 been reporting losses.
17:03 That seems to be turning around.
17:04 So a lot of things are falling into place
17:06 for a lot of these companies across the value chain.
17:10 But in the gas space, we are also
17:12 slightly cautious on other stocks,
17:14 such as Petronet, LNG, or Gujarat Gas,
17:17 where we believe valuations are probably on the higher side.
17:22 OK, well, that's in news and telecom is in news.
17:25 Azhar, I'd love to come to you on that.
17:27 But before that, Surendra, can I bring you in on IT?
17:30 Because that's the other space that is probably
17:32 the most confusing, because discretionary demand seems not
17:37 present at all.
17:38 And yet the stocks have done reasonably OK.
17:40 Maybe the valuation supported.
17:42 What's your thesis?
17:43 Yeah.
17:43 So I think-- so two parts to your question.
17:47 Firstly, why have the stocks done relatively well?
17:50 I think it's a combination of valuations in the India context
17:55 being OK, say, at the start of the year, last year.
17:59 And then sometime towards the end of the year,
18:02 people started getting more positive because
18:04 of the Fed change in stance.
18:07 And it was also a time when banks,
18:09 which is the other large part of the index,
18:12 started to struggle a little bit.
18:14 So I think-- so obviously, that's
18:15 important from a flow perspective.
18:17 So when you put it all together, I
18:19 think that's the reason why IT stocks have held up relatively
18:22 better than what most people thought.
18:25 Now from here on, I think the key
18:27 is going to be the slope of the recovery.
18:30 Because I think most people, and at least everybody
18:34 I speak to in general, the expectation
18:36 is that FY25 will be better than FY24.
18:40 But how much better, I think that is the key question.
18:43 And there is a big assumption being made on the second half.
18:47 So people who are positive are kind of building in
18:50 that there is a fairly sharp recovery, particularly
18:53 maybe in discretionary spending in the second half of the year.
18:55 And people who are cautious like me,
18:58 we really don't see any evidence of that at this point of time.
19:01 So we are taking a view.
19:02 And I think there is enough macro uncertainty.
19:05 If you look at some of the recent events in the US
19:07 also, direction of rates, when the rate cuts will happen,
19:11 I think there is a fair bit of uncertainty.
19:13 And if you look at uncertainty, it's
19:14 generally been a negative for people releasing the budgets.
19:18 With that backdrop, it's very difficult today
19:20 to build in a case for a strong second half recovery.
19:23 So people like me are modeling in more moderate, more gradual
19:27 kind of a recovery.
19:28 And when you do that, then valuations
19:30 look pretty full for the sector.
19:32 And that is where our cautious view comes.
19:34 So in our India strategy, we're still
19:36 running underweight on IT services.
19:38 Yeah, we stood on the crutch of your note released in December
19:42 when I believe you spoke to a clutch of companies
19:44 and gave out an idea of discretionary demand.
19:46 When the stocks started rallying,
19:48 we do a piece called Editor's Cut.
19:49 And I question that what's changed
19:51 between what Citi did in December,
19:53 versus now for the stocks to rally the way they did.
19:56 So interesting to know that the stance is still the same.
19:58 I wonder if the stance on the other part of BFSI, Kunal,
20:03 is as similar as banks.
20:04 There is value in private banks.
20:05 What about the NBFCs?
20:08 So again, NBFCs, we have to look at it with respect
20:11 to the product segments.
20:12 Because I think the dynamics in different product segments
20:15 are varying.
20:17 When you look at it, in fact, like say for players,
20:21 housing finance companies, now they
20:23 are relatively better positioned,
20:25 given that there has been increase in the risk weights
20:28 on the unsecured side.
20:29 Plus maybe there has been increase in the risk weights
20:32 for bank lending to NBFCs, which is not
20:35 the case for HFCs as such.
20:37 So they are relatively better positioned at this juncture.
20:41 Anything to do with the secured lending,
20:43 they would be relatively better positioned.
20:45 And maybe some of the diversified players,
20:48 they have also corrected in terms of the valuation
20:52 to the decadal lows, both in terms of price to earnings
20:56 as well as price to book, while still
20:58 continuing a similar kind of growth profile
21:01 as well as a return profile.
21:03 So those names are looking quite attractive,
21:07 given the valuations within there,
21:09 and what is the outlook getting into FY25 and FY26.
21:13 Which would these be, sorry?
21:15 As in the--
21:16 So we recently upgraded Bajaj and Chola.
21:20 So Bajaj at these valuations, it's at the decadal low,
21:23 I would say.
21:24 Chola is anyway being at a relatively higher valuation.
21:28 But Bajaj is looking, again, attractive within this space.
21:32 OK.
21:32 Viewers, please remember, these are
21:34 indicative of what the Citi team tells their clients.
21:37 Please do your own research if you're indeed
21:39 observing the show and trying to follow this.
21:41 I have three more questions.
21:42 We'll go slightly over on the show.
21:43 But Atul, property, pan-India, southern India,
21:47 what do you like?
21:48 Because almost everybody is throwing out some great numbers.
21:50 Yeah, so far, demand, whatever numbers have come,
21:53 till Q3, demand remains very strong.
21:56 And especially at the premium end, it is very strong.
21:59 The mass or so-called affordable is not doing that well.
22:04 But the premium housing is doing quite well,
22:06 and we have seen price rises as well.
22:08 See, our sense is that because there
22:11 are no signs of weakness, immediately it
22:13 is difficult to say that weakness will happen very
22:15 shortly.
22:16 But at the same time, stock prices have run up quite a bit.
22:21 And market is extrapolating, in our view,
22:22 15%, 20% kind of growth for next few years from the developers.
22:27 So we need to be a little cautious on the valuation
22:29 front.
22:29 But as far as underlying business is concerned,
22:32 there is no reason to complain as of now.
22:34 But so is the concern on valuation
22:36 strong enough for you to turn negative?
22:39 Or are you in a wait and watch or an observe mode?
22:42 So we have very few buy-rated stocks in the sector.
22:45 So we are cautious.
22:48 And our contention here is that historically,
22:50 through the cycles, we have seen the residential developers
22:54 kind of struggling with ROEs and cash flows as well.
22:57 So while, say, on the CAPEX side,
22:59 we just discussed that there also the valuations are quite
23:01 punchy.
23:02 But if you look at industrial companies,
23:04 you get pristine balance sheets, very high ROEs,
23:06 very consistent cash flows.
23:08 At least that comfort is there.
23:09 Here on this side of my coverage,
23:12 the comfort on these aspects is not there.
23:15 So we are slightly more cautious here.
23:17 Fair point noted.
23:18 I don't know.
23:19 How much can you comment on within the space of telecom?
23:21 Because there's only technically one pure play telecom.
23:25 Or there are ones struggling, the third one,
23:27 a mix of a conglomerate.
23:28 But what did you observe out there?
23:30 What is interesting?
23:31 OK, so in terms of the telecom operators,
23:34 we like Bharti Airtel, which is kind of the main player
23:37 out there, a standalone entity.
23:40 Execution has been very strong.
23:42 Their premiumization strategy has been working well.
23:45 They've been delivering on market share gains.
23:47 And from next year, you should start
23:48 seeing a decline in CAPEX intensity, which
23:51 then translates into better free cash flow generation,
23:53 deleveraging.
23:55 So Bharti, we would be buyers even at these levels,
23:57 even though the stock has done well.
24:00 In an ancillary space, we do like Indus Towers.
24:03 It's a contrarian buy call.
24:05 We've highlighted it even in our strategy picks for the year.
24:09 We had upgraded it last year because we felt
24:12 the risk reward is quite OK.
24:13 Now, there are still a few things
24:15 that need to fall into place.
24:16 But at current valuations, the stock
24:18 is still looking fairly attractive to us.
24:23 Vodafone Idea has started paying down some of its past dues.
24:27 With Bharti's CAPEX intensity coming down next year,
24:29 even Indus should come down.
24:31 So there is a possibility of free cash flow generation
24:33 and dividends being reinstated.
24:35 So that's a little bit of a non-consensus tactical call
24:39 that we have.
24:40 But overall, amongst the telecom operators,
24:42 Bharti remains our core buy.
24:45 Before we wrap up, Surinder, 30 seconds.
24:47 NetNet, you are more constructive about FY24, FY25
24:49 earnings at the end of this season.
24:51 What is the worrying sign?
24:52 Quick 30 seconds.
24:52 Yeah, sure.
24:53 So CR numbers have not really changed that much.
24:57 Let me put it that way.
24:58 I spoke about 14% CAGR in earnings.
25:02 Again, the numbers, if you look at last quarter or the quarter
25:05 before that, it's not very different.
25:07 So I think the good thing is that at an elevated level,
25:09 the earnings momentum is sustaining.
25:12 And the visibility is there.
25:13 And you feel more comfortable as time
25:15 goes by that, OK, we can get to that kind of a number.
25:18 From a risk perspective, I think there are still
25:20 certain pockets where, like for example,
25:23 if you look at consumption, in general,
25:25 there are obviously a few outliers.
25:27 But that still remains quite challenged as a space.
25:30 And it's a large enough space, right?
25:33 So I think there are still pockets where you worry about.
25:36 But in general, from earnings trajectory perspective,
25:39 things are looking pretty healthy.
25:41 Cross fingers for all of that.
25:42 Gentlemen, thank you so much for being with us on the show
25:44 today and giving us your thoughts.
25:45 I appreciate your time.
25:46 Thanks.
25:46 And viewers, thanks for tuning in.
25:48 [MUSIC PLAYING]
25:51 [THEME MUSIC]
25:54 [MUSIC PLAYING]
25:58 [MUSIC PLAYING]
26:01 [MUSIC PLAYING]
26:04 [MUSIC PLAYING]
26:08 [MUSIC PLAYING]
26:12 [MUSIC PLAYING]
26:16 [MUSIC PLAYING]
26:20 (dramatic music)