‘Contra Call Now would be SBI and ICICI Bank’
In a conversation with ET Now, Sanjay Dutt, Director, Quantum Securities, says loan demand will pick up from June quarter onwards. He says he is bullish on the markets because intelligent buyers on the Street are looking for good investment ideas. Edited excerpts: I am more bullish now because of the fact that people have now started looking for ideas. Whatever I hear from the smart money right now, the intelligent buyers on the Dalal Street are looking for good investment ideas. They had all held back thinking that the demonetisation impact would continue for a longer period and that the Trump victory was a problem. There is a phenomenal opportunity in the market and one needs to look at that. In fact, most of the headwinds are now more or less out of the way.
The biggest story which I told you last time is that while we quibble about 25-50 bps of policy rate cut, on ground there actually has been a 200 bps rate cut for consumers and industry from September-October days to now. Global attention is turning to India because the equations that Trump has with a lot of countries are making us a safe ally to do business with. All these factors are really falling in place and the good run has just begun.
WHAT TO BUY
You have been famous for contra calls. What is that contra sector that you are betting on this year? I have never really given a call on private banks like ICICI Bank, but the contra call here would be now State Bank of India and ICICI Bank because the opportunity that these two banks are sitting on is huge. If you see the impact of demonetisation, the biggest beneficiaries are these two banks. The largest banks would be able to retain a substantial amount of deposits in CASA or in some other form. Their margins would improve and if the investment demand picks up, capex demand picks up, the economy picks up, and you will see their bottom lines expand. Among largecaps, these two banks look very exciting.
But where is the credit growth? Do not look at the rear-view mirror. It is exactly like what we did when demonetisation was announced when everyone said everything is collapsing and this quarter would be dead and we do not know when demand would revive, when the consumer will come back to buy, etc.
Markets start to discount things well in advance. I have no second thoughts that credit demand will pick up and you are already seeing that scene change. People are missing it. Banks are consciously shifting to consumer-led demand more than industry-fed demand. That means banks are trying to focus on individual balance sheets of consumers by wanting to give out a large amount of housing loans, loans against property, loans for private consumption, loans for buying durables, non-durables, everything else, personal loans because they see that in a time like this when industry demand is not picking up, we are still managing to disburse a huge amount.
I see a large number of banks doing that including ICICI Bank, and in the next two to three months, you will see industry demand picking up. The problem we have with the industry right now is that some of the top 10 or 15 borrowers in the country have a major issue in terms of their balance sheets being leveraged and skewed towards extra debt and not managing to service it.
Today banks actually are scared of lending. We have seen a recent example of the chairman of a bank being arrested. I am not passing a verdict whether it was right or wrong, but there is genuinely a little bit of fear among large lenders to take exposure or restructure some of the debt. I see that going away because the government is moving in that direction as totally in charge of this problem. I am not worried that corporate demand or the industrial demand for loans will not pick up. It will pick up from June quarter onwards and even if it does not pick up, the risk-reward ratio is still okay. You would not end up losing much if you bought banks on any decline.
We have seen multiple block deals happening in the NBFC space. What pocket within the NBFC space are you bullish on? Some of these microfinance lenders look a little expensive right now. On a correction, I would want to buy them. Something like an Ujjivan looks good. Mortgage financers, such as Indiabulls, Capital First, PNB Housing, Repco Finance, are some of the interesting companies that can be looked at for long term. But obviously you need to understand that when there is froth.