Neeraj Dewan bullish on NBFCs and PSU banks, sees continued momentum ahead

"There is a possibility that you can get some improvement in the valuation, in the way the stock has been performing and next one to two years you stay invested in Apollo, you should get a decent return from these levels and of course, this value unlocking will also help, which has been long pending and people have been expecting this," says Neeraj Dewan, Market Expert.

Apollo Hospitals, just wanted to have your take on this one, as the company announced to list their digital and pharmacy business in the next 18 to 21 months and we have seen Apollo hospitals taking some of those restructurings in the past one to two years to simplify their whole structure at play right now and with this delisting, how do you see the value unlocking because this platform listing is one, but the other fact of the matter is that Apollo Hospitals that could be one of the other listed entities, the discount that it used to trade with respect to some of the other pure play hospital chains that will also get rewarded. Give us your sense on this news flow and what could it mean for the stock.
Neeraj Dewan: Actually, I have been positive on this hospital and healthcare segment and Apollo Hospitals has not given that kind of return which other hospital chain like a Fortis has given over the last few years. So, there is a possibility that you can get some improvement in the valuation, in the way the stock has been performing and next one to two years you stay invested in Apollo, you should get a decent return from these levels and of course, this value unlocking will also help, which has been long pending and people have been expecting this.

It will take some more time definitely to get the whole thing into place, this goes through a process so that will take some time, but for long-term investor definitely this should be a good bet to stay invested in.

What is your take on IREDA and other power financing companies? What are you making of the space at the moment?
Neeraj Dewan: With the recent measures by RBI for project financing and with the liquidity infusion that RB has done and interest rate cut, over the next two to three quarters you will get the impact of all this coming into power financers, companies like IREDA, they should benefit and there should be increase in credit flow which should happen, so credit demand should also pick up because of this. So, I am positive on this space. Next two to three quarters you should see the impact and the stock prices should also reflect that in the next one year.

Just wanted to have your take on the it because just in the next couple of weeks we will be kickstarting the results season. First of all will indeed be TCS, 10th of July is the date. What is that that the markets are building in with respect to the IT majors this time around? From last quarter to this quarter, do you see any change in sentiment? Anything incremental that you are picking up?
Neeraj Dewan: Yes, actually still it is a wait and watch as far as IT is concerned. One should see how things pan out as far as US is concerned. So, once you get little more clarity what is happening because still there is a fear of some slowdown happening, tariff situation still not that clear, you are reaching a stage where again the tariff talks started. So, if there is a slowdown which is happening because of that in US later, it is still not so clear. So, still wait and watch for it. Let us see what the IT majors have to say, what they have to say post results and then we will take a call from there.

What about the overall earnings expectations that you have from quarter one? Should we be heading in with muted expectations because that is what we did for the previous quarter and we were positively surprised. Do you believe that narrative could play once again for quarter one or do you believe this could be largely muted?
Neeraj Dewan: I think this quarter should again be muted because there is not too much expectation from this quarter, June quarter, because first quarter is normally that great a quarter, normally a lot of the booking and everything is done in the last quarter or the last couple of quarters.

So, first and second quarter normally a little muted. But let us see if we are able to beat this expectation which is low right now.

Help us understand that which are your sectoral bets at this point in time given the fact that Nifty 50 not that far from its all-time high, Nifty Bank same case that is panning out, but there is a lot of sector churning indeed that is at play. What is your view that with respect to the earnings, valuations, which sector can do well right now?
Neeraj Dewan: I am positive on PSU banks and NBFCs, some specific housing finance companies. These are the ones where you have seen some momentum also picking up. NBFCs should continue doing well, this quarter should also be decent for them. Even specific housing finance companies should do well.

And then I am positive on infrastructure. I am positive on autos, but specifically something like two wheelers or companies which are into tractor and farm equipment, there some improvement should be visible. And beside that, FMCG is one space where because inflation is low, expectation of good monsoon would have also created some improvement in demand there.

So, it is early to say whether the demand improvement has happened or not, but we will get some view post the results from the companies also. Capital good is one space where you have seen improvement happening. You see that order flow improvement, some execution pickup has also happened in project. So, capital good is another sector I will be watching for in this result.

Why exactly would you be watching out for capital goods? I mean, any specific reason because government spending is yet to pick up.
Neeraj Dewan: Yes, definitely government expenditure had come to a standstill earlier in the year, but during March there was a view that they had picked up and order flows have also improved, execution is improving because liquidity improving. So, I think that there should be some visible improvement which we could see in these results though the full impact would not have come but you will get some improvement, plus post result conference calls will also give a better view of what is there ahead of us. There should be improvement that should be there.

What do you like within the largecap space? In the Nifty 50 gambit, what looks interesting?
Neeraj Dewan: See, it is more again stock specific. I am not looking at only largecaps. It is more of a mid and smallcap which should also do well. So, I feel that if you look at companies like, for example, company like a Bajaj Auto, it is a largecap company, it is trading at below what long-term average valuation because of obvious reason the management commentary and the results have not been that great.

But some visible pickup happening there can have a good impact on the share price of Bajaj Auto if you see some improvement happening there. And other stock that I am looking in the largecap basket would be something like Divi’s which I have been positive on. They are showing improvement and now the stock price is also reflecting that.

So, for a long-term investor Divi’s Lab would still be a good pick as far as pharma is concerned. And beside that like I mentioned capital good space is one space where I am looking at the largecap names in capital good that should do well and then I mentioned PSU banks, there also I am positive on, though initially there is a NIM which may contract because of the interest rate cut, but then overall credit demand should pick up. So, next two-three quarters we can see that improvement happening in the credit demand.