In banks, quality managements only differentiator: Vikaas M Sachdeva

The word ‘revenge’ is being spoken about in terms of revenge buying, revenge travel, revenge spending and that is something which is starting to play out. Look at the largecaps, midcaps and look at specific companies. Look at sectors like travel, consumption, consumer apparel, hotels, airlines, cinema halls, says Vikaas M Sachdeva, CEO, Emkay Investment Managers.

What do you make of banking outperformance from the largecap private banks like ICICI? Is it time to go overweight on the banking sector which has been slightly under the weather?
Well two things. The banking sector per se, has been an underperformer in the recent past but it has been fairly established that what drives the economy is not monsoons anymore, it is basically credit. It is the banking sector. So if one has to play on the Indian economy in terms of its growth, it is a very natural corollary to be in banks. But what is adding a lot of tailwinds at this point are the actions taken by banks over the last few quarters in terms of cleaning up their balance sheets and focussing more on high profit generation activities. So yes, banking does make sense going forward.

So what would you prefer? On one hand, there are PSU banks whether the recovery is looking pretty strong, loan books are strong compared to the market cap and on the other hand, there are two or three large cap banks which have great loan size and at the same time, they are priced to perfection.
Very often in this whole treaty of management business and valuation, valuation gets talked about quite a bit and management gets talked about the least. That is probably the tail wagging the dog. One could make a case of valuation here and there at any given point of time. PSU versus private, certain specific stocks in both the PSU and private banking spaces but what is very clearly evident is that the market is rewarding high quality management within that sector. This includes a few names among PSU banks as well. People are saying it does not matter whether it is a PSU bank or private sector bank at the end of the day if you are looking at a three- five-year growth timeframe. Let us pick and choose high quality managements and reward them with higher valuations.

Which are the other sectors you would look at? In some of the high growth, high PE companies like HUL, DMart and Jubilant Food, last week, the market told us that the growth may not be as high as it was perceived earlier?
If one has to look at it from a valuation perspective, I would step back and focus on two things. One is the fact that in the short term, markets can go up and down and can race ahead of valuations, can fall behind valuations on the basis of a lot of other factors. But in the long term, there is a compounding story which is available in this country. Now this compounding of wealth is basically a compounding effort which is starting to play out.

A more simpler way to look at it is where does one see growth in the economy in the next 18 to 24 months. One of the clear stories we played out is the vaccination trade. The word ‘revenge’ is being spoken about in terms of revenge buying, revenge travel, revenge spending and that is something which is starting to play out. Look at the largecaps, midcaps and look at specific companies. Look at sectors like travel, consumption, consumer apparel, hotels, airlines, cinema halls.

For example, in entertainment, in the next 12 to 18 months, there is a complete lineup of Hollywood and Bollywood movies and if one starts booking tickets now, you will find that you are really not getting tickets in cinema halls. So people are starting to go out and exercise their power of spending. They have been cooped up for so long and this particular vaccination trade with spending across a lot of sectors is probably something one should watch out for. It is going to unfold a little bit faster than what most people think it would be.

Would you play the unlock trade in movie halls and restaurants? Would multiplexes be better? Would hotels, restaurants be better? Would consumption via malls be better? How would you essentially want to play this?
If one starts looking at the entire spectrum of things — whether it is malls, consumption or cinemas — there is a lot of value still available. In fact, I would look at the other end of the spectrum.

Over the weekend, I stepped into a theatre to watch a movie and I realised that one of the biggest things which is required at this point of time is blue collar workforce. There are not enough people manning the stalls right now and those who are, are not trained enough. So training, skill development is another big theme which can play out in terms of the vaccination trade and it is not being talked about enough.

How would you look at the metals pack. Do you think the re-rating has stopped or do you think the cycle has reversed?
Too early to make the call. Most of the metal space is dependent on what happens in China and China is going through a calibrated slowdown. It is too early to say and I would not want to hazard a guess but purely on the basis of looking at what is happening in the metal space in this country, we can see most of them have deleveraged themselves. They have paid their loans ahead of schedule.

India Inc, especially from the commodity sector, is now increasingly looking at things from a global benchmark not just the local benchmark. So capacity expansion is being discussed in boardrooms, profitability is up. All of this will take some time to unfold. In the short term, it might go either way. But in the medium to long term, India Inc is going to step up and take its rightful place. So long term, I am not too bearish. I am actually reasonably bullish on this entire sector but keep a watch. Specific stocks will have to be taken onboard rather than the entire pack.