The Zee stock ran up very smartly in trade yesterday. There was a lot of speculation on when the deal was going to happen. What do you think is happening there because the stock has been through a rollercoaster ride to say the least?
Till the time a deal fructifies, we should not expect any kind of an up move. It also depends on the deal structure. If they get a strategic investor, then the challenge for the company would remain in terms of price performance. If there is an outright sale, then possibly things will be quite different but overall media as a space is quite challenging domestically as well as globally.
The only piece which is sort of looking decent is the multiplex space wherein both PVR and Inox have been doing quite good. In this quarter also, we are expecting a decent set of numbers, given the fact that the sporting events would have some impact overall. But in the entire broadcasting space or even the print media space, the growth challenges are quite high.
There is also an element of a disruption from OTT players on the broadcasting side. The only space which is looking safer is the multiplex space. Otherwise, till the time a deal happens in Zee, there is nothing much for investors to look at.
What is your best bet for the rest of the year?
Banking definitely looks quite positive and our preference is for SBI. Most of the challenges for these corporate banks are behind us and there is a good amount of trading opportunity in these banks, especially SBI, given that the yields had already declined about 46 bps in the last quarter and there is an expectation of a further decline of 40-50 bps. From that perspective, SBI definitely looks good. It has already done well in the last one year and it will continue to do well going forward as well.
IndusInd Bank and Infosys results would be out today. What do you think the street is expecting?
In case of IndusInd Bank, the numbers will not be comparable on a year-on-year basis because numbers of Bharat Financial will be included in this quarter. Overall, we expect NII growth of about 50% but the challenge for the company is on the higher credit cost because besides the ILFS exposure of about Rs 3,000 crore odd for which they have provided about Rs 1,650 crore, there is an exposure towards DHFL and Reliance Group stocks.
From that perspective, the credit cost is going to remain high and which is why profitability numbers will be relatively muted. Till the time we do not see a leadership change happening or at least the growth comfort does not come back, I do not expect the stock to perform even though post correction, it is trading at about 2.5 times on a forward book basis. For this stock, the challenge would remain despite this current quarter muteness.
We are expecting a decent set of numbers from Infosys. Within tier-1 players, Infosys is far better from the deal win perspective what we have seen, even from a valuation perspective. So for example, TCS is trading somewhere about 22 times and Infy is trading at about 16 times odd so within tier-1 companies. Infosys is expected to do better than compared to TCS. So that would be our top pick in the IT space.
What is your view on IT with regards to what you are anticipating from Infosys? What are overall possible headwinds for the sector?
In case of Infosys, for the current quarter, we expect dollar revenue growth of about 2.6% odd. However, rupee growth could be about 1% odd overall. What we are seeing for most of the tier-1 or tier-2 companies is that there will be pressure on margins in the range of about 100-150 bps odd and because of which, we would expect the overall growth to be subdued.
But for Infosys, the kind of deal wins that we have seen should start translating into numbers going forward, which is why trading at about 16 times on a forward basis, we find this stock more attractive compared to the rest of the pack.
Wipro is expected to post a muted growth negative of about 0.5% dollar revenue growth. HCL Tech also will have a muted set of numbers. From that perspective, overall Infy looks well poised within the entire IT space. Overall, this space is decent, given the fact that the digital as a vertical has been doing extremely well for most of the players.
Now traditional business for some have been declining at a faster pace and which is why some companies have been delivering lower growth. But overall digital as an opportunity looks quite interesting. Growth rates have been sustained and that is why IT is a good place to hide, despite rupee appreciation going forward or rupee not really helping them. IT overall is a good place to hide in case of further weakness in the market.
Does one really buy a four-wheeler stock? There is the coming electric vehicle or EV disruption. The government wants Indian car manufacturers to focus on that. Maruti is not going to be able to change their assembly lines so quickly. Should one avoid buying four-wheeler stocks completely?
On Maruti, we have a sell rating and most of the four-wheeler and two-wheeler companies are behind the curve in terms of technology. The kind of investment they have done is quite meagre. Maruti has seen 18% decline in volumes. We would expect the volumes to pick up but somewhere down the line. The challenge for Maruti is that earnings are still going to grow in single digits and the stock is trading at about 20 times.
Whatever arrangement they have with Toyota, we are yet to see benefits of that coming to the company. Even from a capital allocation perspective, we find the coming strategy to be challenging given the fact that the company is looking to invest in real estate for their dealers, which is also sort of challenging.
EV is definitely a future. Companies have been looking for some support from the government but the government has been quite stiff with respect to BS-VI implementation or the EV timelines. Clearly, companies are behind the curve. I do not expect a technical bounce in Maruti but we continue to remain negative on the entire auto pack including Maruti.