Wondering whether you are bracing for a knee jerk reaction on TCS today?
There should not be a knee jerk reaction. It is not like people were expecting to get a very good result coming out this quarter. The more fundamental issue is that we have got to a stage where the margins now seem to be, even though the numbers are coming back, in terms of growth, etc., to pre-Covid levels. We still have a problem with the margin.
And the margin clearly has been a miss even though they revised it not too far back. That has been a challenge. Going forward, one of the things I just heard the management say is that they are not looking to do anything new in terms of the change in management. That to me is a bit of a concern given the fact that the technological change that is happening and the kind of coding requirements.
I think there is a longer-term challenge to the business. Near-term, of course, the deal gains have been fairly robust. So this year is going to be definitely a challenging year for the IT sector. I think the market has already realized that and has traded it down. What we are looking now is just a bounce from the bottom.
We are also watching out for what is happening in the oil and gas space as well as the banking space. Let me first come to the banks because the Q4 updates from the rest of them were quite strong and now we are talking about even the smaller banks picking up when it comes to their liability franchise as well. Do you have any favourite bets from the mid-tier banking names?
I think given the fact that the dominant factor will be the liability side of the balance sheet, you should be looking at, again, the private sector banks largely. And I am not a great fan of the smaller banks, though they may be cheaper. The reality is that they will be putting up assets which are weaker in terms of quality compared to the larger banks. So at this stage, I would stick with the private sector banks and among the public sector banks, maybe a Bank of Baroda and SBI at best.
Some renewed vigour now coming in for pharma. Wondering whether you are at all invested in the space or recommending so?
I think so. I think this is a sector which has underperformed quite considerably for a fairly long period of time. So now the time is coming. The API market in the US seems to have stabilized and has started to do quite well so I think most of the API players in India will do quite well as well. The numbers that you are likely to get from, for example, DRL etc, this quarter will be quite good. So overall, I think certainly it is time to go back into pharma and perhaps speciality chemicals to some extent.
Let us also talk about the earnings which are expected. And of course, over the weekend, we will get the numbers from the banking major as well. HDFC Bank will come out with its earnings come 15th of April. We already have the Q4 update with respect to how the deposit and advances have panned out. With respect to the stock trajectory, are you expecting HDFC Bank to continue the kind of performance that it has in the recent past?
In the very recent past, HDFC has done well but after a long gap. So I would expect to see that. It is actually trading at marginally lower than its historical kind of numbers, price to book and so on.
Of course, there is some amount of issue because of the merger that is impending and therefore the ROE fall. But even then, I think given the kind of growth that you are likely to witness in the credit side and their ability to continue to have low-cost CASA, it will really mean that their earnings at least should be fairly robust.
So I would imagine that, as I said, the private sector banks, in particular the ones that have not done well, including HDFC and perhaps Kotak to some extent, are likely to be the ones that will perform well.
