How well it will be captured is something we need to see and the initial run-up because of this transition to EVs has already happened. Now, we need to watch out for the performance"2025, the key is that what sort of revival we see in the auto sector. This year has been very turbulent, like initially there were good demand trend, then inventory got built up, festival season was fine, but post festival season again the growth concerns are there. The inflationary concerns in the minds of the consumers has held back consumption across various sectors and on top of that liquidity and interest rates have been higher," says Sandip Sabharwal, asksandipsabharwal.com.
We were just chatting yesterday about Asian Paints and how you think actually maybe it could bottom out in the year ahead. But that is not the case. I can even see names like IndusInd Bank, Nestle, Tata Consumer. We know your thoughts on FMCG, but what about banks? Do you think that the underperformers, like a case in point being IndusInd Bank, Bandhan, etc, even IDFC, and it is a long list, AU Small Finance Bank as well added in there, could they actually play catch up?
Sandip Sabharwal: If we look at the internals of the banking stocks, especially the smaller ones, then what we need to see is that how the asset quality buildup is there, what have been the growth drivers in the past, how margins will get impacted for them, etc, and what the managements have historically said and what they have been able to deliver.
So, many of the smaller banks, that is why I do not invest too much into banks outside the top ones, because in the banking and financial sector, it is NPAs which determines how well you do on the asset quality.
Reported profits can be absolutely anything, because profits can be boosted up if you do less write-offs, profits can be less on a reported basis if you do more write-offs, etc. So, asset quality remains the most important one. So, among the banks you named, IDFC First Bank is a bank which we have actually been accumulating over the last few weeks for the first time after the stock corrected over 35% from the top. Because as per whatever I saw, the last quarter results, although there was reported profits and some asset quality stress was there, but the management was very proactive in writing off and maintaining their net NPAs.
And after this fall, it is reasonably well-placed and as next year we will see some monetary easing, we will see some liquidity improving, etc, many of the NBFCs will also benefit because of that trend. So, among the banks you named, IDFC is the one where I will be positively inclined.
That was the big stand out performer this entire year, the kind of distinct moves that you had within the auto pack, the under performance in the first half from the two-wheelers, then the re-emergence, I mean who would have thought Bajaj Auto would be one of the stand out performers within two-wheelers and the kind of pecking order shift that we have seen in the passenger vehicles wherein Tata Motors ebbed off recently and it is M&M which has emerged the winner. How do you think 2025 will play out though?
Sandip Sabharwal: 2025, the key is that what sort of revival we see in the auto sector. This year has been very turbulent, like initially there were good demand trend, then inventory got built up, festival season was fine, but post festival season again the growth concerns are there. The inflationary concerns in the minds of the consumers has held back consumption across various sectors and on top of that liquidity and interest rates have been higher.
The good thing for them has been obviously that raw material input prices have been moderate and that has helped them maintain profitability.
Going forward next year could potentially be better. How much better we need to see, but all trends related to rural income, post monsoon pickup, and the overall trends of the economy after this phase of high inflation impacting consumers would be better. Now, among the auto companies the leader like you said has been M&M and that has been our top holding. Tata Motors obviously exited some months back at around 1100 levels.
So, that stock on pure valuation basis has again started looking attractive, so we need to evaluate that. But as core holding we continue to hold M&M. Maruti is something I like but the stock has not actually performed, like it had a run up then it gave up most of the gains.
Strategically, they have also realised that they need to embrace EVs, get into segments which will grow in the future. And in two wheelers after the initial run up, there has been a substantial correction. So, if one has to pick something from the two wheeler pack, I would think that Bajaj Auto after nearly 30 odd percent correction from the top could be interesting.
I would like to take your viewpoint on the battery companies as well because both these companies and the leaders there Amara Raja and Exide are going to be in focus today after Hyundai Motors India has gone ahead and announced that for their ICE and CNG offering they are going to be collaborating with Amara Raja for the AGM batteries which are like 150% more in terms of the outperformance with respect to the conventional batteries and with Exide the earlier MOU that has been signed, now it converts into a binding term agreement. This indeed gives confidence on both of these companies. But specifically any of the stock that you like at this point in time and especially what is your take on Exide that this EV battery is through, can we expect more such announcements in the times ahead?
Sandip Sabharwal: Battery companies, one thing is probably going to happen that the battery composition per vehicle is going to go up, like in the ICE vehicle it could be one battery, as we move to EVs the number of amount of batteries and the value of batteries required moves up substantially.
So, on the back of those investments and announcement these stocks have got rerated also over the last two years, but the earning delivery is yet to come. Now, the other factor which also will be there will be how the overall auto industry growth because if the auto industry growth is muted, then many of these investments will take time for them to at least start yielding results, so that is the concern somewhat for battery companies.
The other thing is also that battery technology is also evolving. So, when these companies are investing huge amounts into a particular battery technology and there are some improvements out there, so then how do they adapt to that. So, the opportunity is there.
How well it will be captured is something we need to see and the initial run-up because of this transition to EVs has already happened. Now, we need to watch out for the performance.
