Accounting profit in steel shares to buy aluminum shares: Hemang Jani
Do you agree with Credit Suisse that it’s time to sell steel and go?
We have seen massive upgrades in steel inventories over the past 2 quarters. The main assumption is that prices are strengthening internationally. India is always on the cheap and things are going well. So there are two aspects here. The first is that in metals or any other commodity game, the call is made on the basis of the price movement of those commodities. The second part, which is much more critical, is that over the past 2-3 quarters, the improvement in steel company balance sheets has been mind-boggling. Their enterprise value has not changed over the past six months, which means that the total growth in market capitalization only matches the amount of debt that has been repaid. So there is still a revision that can be expected on the basis of stronger balance sheets observed over the last 1-2 quarters. It would make sense to take some benefit from steel and switch to aluminum where things are a little better and the risk is less. But yes, the part of the commodity cycle is a bit tricky at this point.
Banks were rated as underperforming. Price action in SBI has been quite encouraging. Is it time to stay neutral or underweight in banks?
Banks have underperformed for almost three months. We have seen a catch-up happen over the last week and as we see the unlock trade unfold over the next few months there may be some additional momentum. The only point of concern is that HDFC Bank is telling you that on the personal lending front there might be additional asset quality issues. It might be an overhang for banks, but overall the next 1-2 years looks a lot better with provisioning etc. We would certainly be overweight banks at this point.
What is your opinion on the opportunities in consumer staples?
With a few exceptions, consumer staples underperformed. The main reason is that there are no big surprises on the volume front. More importantly, in the current quarter, no one is feeling that kind of volume surge to play. Second, on the margin front, there will be some pressure. When the broader market is doing so well with direct retailer participation, the focus is not on defensive measures, as the risk on the trade plays out with a lot of force. We love HUL and Marico. Due to the dynamic play, the focus would be on midcaps and smallcaps.