How are you viewing FMCG? While growth is not a concern, it is always a toss-up between growth visibility and the valuations that these stocks are trading at?
You are right. If we look at the FMCG companies results that they have posted, there has not been any significant damage to the revenue that they have reported or to net profits. In the case of Hindustan Unilever (HUL), the net profit has grown 17-18%. On valuations, yes, a lot of these companies are extremely overvalued and that is not just about these companies. It is true about the markets as a whole because last year for about six to eight months, we were in a complete lockdown and FMCG was one sector which was not really affected by that lockdown because the goods that these companies make were still in demand.
Is this a market which is telling you that a strong economy, strong earnings growth and strong margin expansion is coming or is it telling you enough, it’s time to get careful now?
One always needs to be cautious because something or the other comes and hits you. There are always some kind of Black Swan events every one and a half years from demonetisation to GST to IL&FS crisis and now Covid a once in a 100-year kind of an event . Having said that, post Covid, it seems the recovery in the organised space is much faster and job losses are relatively low in the organised space.
BOI AXA.
You have got quite a few lenders in your portfolios be it the country’s biggest mortgage financiers, some gold loan companies. There are vehicle financiers like M&M Finance, Piramal, NBFCs with wholesale books which got rerated. Where do you stand as far as the lenders are concerned?
In any lending business, there are two big levers; one is the cost of funds and other is the cost of lending or cost of credit. For the last one year, we have seen the cost of funds coming down very drastically and this was reflected in the NIMs at most of the lenders. But then the perceived cost of credit was very high all through the pandemic and now the market is realising that the perception or the hypothesis which they were working on for the NPA levels somehow is not holding correct. As a result, the market is now looking at lenders more positively and the benefit which they were getting because of low cost of liabilities are getting translated into higher multiples.
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Stay in more liquid names as sector rotation is already evident and will continue for a longer time, says independent market analyst,
What has stood out for you in terms of Q3 earnings?
If Q3 had not been good, we would have been staring at an abyss. We are looking at a situation where there is a large reopening trade, coming from a base where almost nobody was selling anything because most companies were shut to a stage where we are almost fully open. You would expect to see a large amount of the business coming back and most companies are even today reporting that they are close to may be 90% give or take of what their business was pre-Covid. We have not really got to a stage where we are growing faster than in the past, except for the fact that the base has shrunk considerably.