BNP Paribas will enter corporate banks when these stocks bottom out: Anand Shah
Talking to ET Now, Anand Shah, Deputy CEO & CIO, BNP Paribas MF, says he is expecting an outperformance from passenger vehicle segment exposed to rural India. Also, Shah says he will gradually increase exposure to corporate banks.
Edited excerpts:
You are saying correction is inevitable post the 13-month rise. Does that mean that as a fund manager and CIO you are cautious and looking at increasing cash levels in the market right now, or do you stay put in the investments made?
To me, this entire correction was a much-needed correction and is part and parcel of the market. We are not too perturbed with the current correction. It is part of the cycle with which it goes through. We believe this will sustain and continue another 15-20 days into April as well, till we start getting some results. If you see from a fundamental point of view, I think the market has been waiting for a robust earnings growth and our channel checks and our data analysis on all the micro levels on monthly sales are indicating a recovery on the economy from the base of demonetisation and GST. So, earning is something which would continue to support the markets as we enter the April second half.
In terms of how I see markets, I think we continue to remain quite optimistic and to that extent we are not taking too much of a cash calls. Having said that, our view is more stock specific. We believe the financial year 2019 will be a very interesting year for stock pickers, given that macro will remain challenged. That is something which people will have to keep in mind.
Talking about individual stocks, today clearly seems to be belonging to autos. We have seen some great reportage in the monthly sales for the month gone by and now you are seeing some of the auto ancillaries as well as tyre names as well holding out quite smartly. That seems a global trend because you have seen the North America Class A truck orders also come in extremely robust. How is it that you classify within autos on what to buy a fresh and what to keep on holding?
As far as India is concerned, we are clearly seeing a recovery which is quite broad based and beyond auto. We have seen quite a robust spending by government leading, from farm loan waivers in the previous calendar year till increase in MSPs or increase in support to the farm income. That is reflecting in some bump up in the auto sales numbers already, but will sustain through the financial year. So, from the domestic point of view, I think we are more inclined towards passenger vehicles having exposure to rural India, which will outsmart the overall auto segments of the market. On the international side, there has been global recovery which is expected. There is a lot of noise around rising inflation globally and frankly the positive side of that inflation is that the growth is picking up. So, yes even in the US market we are seeing some pickup in consumption and auto sales. But from India perspective, we are clearly seeing uptick in the rural spending and farm income being the focus area for the government in coming two years. We are expecting an outperformance from passenger vehicle exposed to the rural India.
How mutual fund managers or CIO like you are approaching the banking sector? That is an overweight sector in most MF portfolios and a lot of them, especially some of the large cap funds, have exposure to ICICI Bank and Axis Bank. Given the exposure that you may have to the private banking space and in specific to these two names right now, what is the approach that you would take to the banking space? What is it that you would tell your unit holders and your investors?
Yes, we do have an overweight position but we largely focussed towards the B2C space of the market. So, if you see, the large section of our banking exposure is dealing with banks and the retail households that is a domain and part of our portfolio.
We continue to maintain that the stress on the portfolios is coming to an end. I think we have seen a lot of NPA recognition which has already happened. With the NCLT, various resolutions that are coming through are quite positive. In the next 12 months, the news flows around the NPAs on the corporate banks will start getting better as even the cyclical recovery will come through. So, I think we have been quite overweight on the banks which are more household oriented because the NPAs have been quite low. The competition from NBFC was also quite benign, so the margins were quite good and obviously, there was not much of an NPA issue. Now, gradually we would like to increase some exposure to the corporate banks also. As we see more and more things unfold and more NPAs get unfold that is when we will see these stocks bottom out. We will have an opportunity to enter at the right price in this stressed banks also which are large corporate exposure.
What is the approach that you are taking to some of the financing companies? I know they are not essentially being reviewed on account of the bad loan mess that banks are facing, but a lot of financing companies, I would believe, their books will also come under scrutiny sooner rather than later. So, what is the investment rationale and approach there?
I think we have been quite cautious on NBFCs, given the rising interest rate environment. Very clearly, as the interest rate bottomed out nine months back, we have had started unwinding our exposure to NBFCs because their cost of funds will grow much faster than their ability to pass on to the customers. We have been quite underweight on NBFCs on our portfolio. We found the valuation was quite high and at the other end, even the profits would be stressed because of the lower margins as we enter a higher interest rate environment.
Edited excerpts:
You are saying correction is inevitable post the 13-month rise. Does that mean that as a fund manager and CIO you are cautious and looking at increasing cash levels in the market right now, or do you stay put in the investments made?
To me, this entire correction was a much-needed correction and is part and parcel of the market. We are not too perturbed with the current correction. It is part of the cycle with which it goes through. We believe this will sustain and continue another 15-20 days into April as well, till we start getting some results. If you see from a fundamental point of view, I think the market has been waiting for a robust earnings growth and our channel checks and our data analysis on all the micro levels on monthly sales are indicating a recovery on the economy from the base of demonetisation and GST. So, earning is something which would continue to support the markets as we enter the April second half.
In terms of how I see markets, I think we continue to remain quite optimistic and to that extent we are not taking too much of a cash calls. Having said that, our view is more stock specific. We believe the financial year 2019 will be a very interesting year for stock pickers, given that macro will remain challenged. That is something which people will have to keep in mind.
Talking about individual stocks, today clearly seems to be belonging to autos. We have seen some great reportage in the monthly sales for the month gone by and now you are seeing some of the auto ancillaries as well as tyre names as well holding out quite smartly. That seems a global trend because you have seen the North America Class A truck orders also come in extremely robust. How is it that you classify within autos on what to buy a fresh and what to keep on holding?
As far as India is concerned, we are clearly seeing a recovery which is quite broad based and beyond auto. We have seen quite a robust spending by government leading, from farm loan waivers in the previous calendar year till increase in MSPs or increase in support to the farm income. That is reflecting in some bump up in the auto sales numbers already, but will sustain through the financial year. So, from the domestic point of view, I think we are more inclined towards passenger vehicles having exposure to rural India, which will outsmart the overall auto segments of the market. On the international side, there has been global recovery which is expected. There is a lot of noise around rising inflation globally and frankly the positive side of that inflation is that the growth is picking up. So, yes even in the US market we are seeing some pickup in consumption and auto sales. But from India perspective, we are clearly seeing uptick in the rural spending and farm income being the focus area for the government in coming two years. We are expecting an outperformance from passenger vehicle exposed to the rural India.
How mutual fund managers or CIO like you are approaching the banking sector? That is an overweight sector in most MF portfolios and a lot of them, especially some of the large cap funds, have exposure to ICICI Bank and Axis Bank. Given the exposure that you may have to the private banking space and in specific to these two names right now, what is the approach that you would take to the banking space? What is it that you would tell your unit holders and your investors?
Yes, we do have an overweight position but we largely focussed towards the B2C space of the market. So, if you see, the large section of our banking exposure is dealing with banks and the retail households that is a domain and part of our portfolio.
We continue to maintain that the stress on the portfolios is coming to an end. I think we have seen a lot of NPA recognition which has already happened. With the NCLT, various resolutions that are coming through are quite positive. In the next 12 months, the news flows around the NPAs on the corporate banks will start getting better as even the cyclical recovery will come through. So, I think we have been quite overweight on the banks which are more household oriented because the NPAs have been quite low. The competition from NBFC was also quite benign, so the margins were quite good and obviously, there was not much of an NPA issue. Now, gradually we would like to increase some exposure to the corporate banks also. As we see more and more things unfold and more NPAs get unfold that is when we will see these stocks bottom out. We will have an opportunity to enter at the right price in this stressed banks also which are large corporate exposure.
What is the approach that you are taking to some of the financing companies? I know they are not essentially being reviewed on account of the bad loan mess that banks are facing, but a lot of financing companies, I would believe, their books will also come under scrutiny sooner rather than later. So, what is the investment rationale and approach there?
I think we have been quite cautious on NBFCs, given the rising interest rate environment. Very clearly, as the interest rate bottomed out nine months back, we have had started unwinding our exposure to NBFCs because their cost of funds will grow much faster than their ability to pass on to the customers. We have been quite underweight on NBFCs on our portfolio. We found the valuation was quite high and at the other end, even the profits would be stressed because of the lower margins as we enter a higher interest rate environment.