In FMCG sector, it was not the best set of numbers from HUL. The volume growth of nearly 7% saved the day but the trend that we have been monitoring for some of the other FMCG majors like Dabur, GCPL, Britannia etc. has been very unfavourable in terms of volume growth. Are worse days to come if other factors in terms of monsoon are not favourable?
We were expecting the overall FMCG numbers to be slightly softer because of the higher base effect. Post GST implementation, we had a series of GST rate cuts across categories and as a result of that, most of the companies were delivering good volume growth in lower double digits including HUL.
On that high base, we were expecting softer volume growth, which is going to largely pan out except for a few cases where the impact is far more. From that perspective, the softer numbers do not come as a surprise. Going forward, we would expect things to improve because we do not expect the monsoon to have that kind of a profound impact on the overall rural slowdown and in fact, election-led spending can improve the volume growth going forward.
Overall, we would expect the numbers to remain slightly in the higher single digits in terms of volumes and that is more of a normal growth that we had seen earlier. From that perspective, the higher base effect impacting current numbers do not make our views change. From that perspective, on a stock specific basis we would be selective on the stocks but in general we are not particularly negative on the FMCG space.
How you are placing your bets within the telecom space particularly in light of Airtel’s numbers? We understand there could be a loss this time around?
I cannot comment on Bharti because we have an investment banking relationship. On Idea, we expect the company to make a loss of about Rs 4,500-crore-odd while the fundraising of Rs 25,000-crore-odd and further through stake sale of another Rs 5,000-crore- odd is positive from a shorter term perspective.
That means they will survive or maintain capex for the next four-five quarters but the overall challenge in the telecom space is that people are expecting that you will see a rebound in prices but the way a Reliance is shaping up, it looks largely like voice and data being free and revenues are going to be made beyond that. The current incumbents are really not thinking on those lines or at least they have not spread themselves in that way.
Which is why, the overall telecom sector looks challenging, We are not chasing any of the players in the telecom space at this point in time.
Within the NBFC space, are any numbers indicating that it is time to buy something like a Cholamandal or AB Capital?
We do not have the companies which you have mentioned but in some of the cases like M&M Finance, the numbers were better. The challenge is on the growth side because the auto exposure for them is quite large . Compared to that, we like something like Bajaj Finance where we expect NII growth of more than 50% odd and bottom line growth also could be healthy, It is something which has been performing well and which we continue to like.
NBFCs which have got some exposure towards IL&FS or on the real estate side are still under pressure and there are very few names to bank on the NBFC side. The banking space, on the other hand, looks pretty attractive.
The retail banks have come out with an extremely good set of numbers. The mid-sized banks – Federal Bank, DCB or Bandhan BankNSE -2.14 % — are quite better and then even the corporate banks are also doing extremely well. Something like Axis BankNSE -0.75 %looks far better compared to the NBFCs but within NBFCs, we continue to prefer Bajaj Finance.
What the outlook is on ICICI BankNSE -3.69 %? What sort of management commentary would you be watching out for?
I cannot comment on ICICI Bank because I am part of the same group, but on the corporate bank side, we are expecting good set of numbers. What we have seen in case of Axis Bank and even for SBI, we are expecting that the bank will make a profit of about Rs 2,900 crore odd. Overall, the banking space looks pretty attractive and we see a valuation catchup largely on the corporate bank side. Plus we have seen a good set of numbers in mid-sized banks.
Banking clearly looks very attractive to us. Overall, we expect that the entire banking as a pack should deliver about 36% kind of a CAGR growth. Again some of the banks are delivering on a lower base, That is why we believe that the overall market will remain in good shape given the fact that the banks are expected to do well and now the numbers have been sort of positive in that direction .
Also, the banks are one of the biggest beneficiaries of better FII inflows because banks are sort of good proxy for the overall economic consumption. Despite the recent performance, we expect the performance to sustain.