Reliance may not be a great company from an investment point of view, but nonetheless, if you are holding it in your portfolio, then remain invested. But if it is a case of fresh investment, I would perhaps think twice, says Dipan Mehta, Founder-Director, Elixir Equities.
Does SBI merit a long term or at medium term investment from these levels?
The results are not out yet. Let us see what it has to offer because so far there have been many disappointments on the banking side. Conservative lenders like HDFC Bank and Bajaj Finance have shown a lot of stress in their retail book and I would not want to comment on SBI. At this point of time, we have to see what their numbers are or how their NPAs have shaped up and how the second Covid wave has hit them and then perhaps take a view.
Overall, in the medium to long term, it is great for the banking industry and we are very positive on all PSU banks including SBI where there is scope for the earnings to move up and the PEs to expand gradually. But there could be a negative surprise. So, I would be a bit cautious as far as the banking sector is concerned. Let us just wait and watch. These are trying times for the banks and unlike the last Covid wave, there is no moratorium. So, any delayed payments get reported as NPAs and then they are forced to make provisions and that has increased the credit cost for the entire industry.
Some of the bankers said that this is transient and a lot of it would come back and get regularised but I think it is better to just wary for one or two quarters about the banking industry and then once we have a handle and a visibility as far as the NPAs are concerned, there will be perhaps more conviction to buy into banks. I would just reserve my opinion and adopt a wait and watch attitude for the entire banking sector.
Are you surprised by the way the Zomato stock has doubled from its issue price?
There is no doubt about that and clearly it shows the maturing of the Indian market. It demonstrates the scarcity value of an outstanding business and it also has to do with the fact that a lot of global investors who have a mandate to invest in new generation technology companies are piling up on Zomato at this point of time, considering the delivery volumes and marquee names which have invested.
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In China, a lot of the global investors are buying Chinese tech companies and local Chinese investors have also started buying these companies. A similar wave is playing out in India and that augurs very well for a lot of the other start-ups like Paytm, Cartrade, Nykaa, Policybazaar are going public this year. All of these will get very good subscriptions and may be 6-21 months from now, there will be many more choices for investors to invest in these companies.
These companies will also teach us a thing or two about valuation in terms of market value per subscriber or per unit market capitalisation. Many new terminologies will also come into play. As there are more and more choices for the investors, it is great for India’s capital market. The wealth creating opportunities are there for retail and institutional investors and one should grab that with both hands.
How are you reading into Reliance and what is going to be the next trigger forward for RIL?
I think the real issue with Reliance is that the story is pretty well discovered, well analysed and many of the growth initiatives, strategic decisions, new businesses which they have entered into and those prospects have gradually got priced in the stock price. Now, the last leg of the disinvestment or strategic investment and oil to chemicals is perhaps the only trigger which is remaining and as and when that comes, we may see a spike in the stock price.
But from an investor perspective, one concern is about Reliance becoming a holding company and that typically has got ramifications for the valuations of the underlying subsidiary business because the holding company discount will start getting into play and that is something to keep an eye on though it is not a major threat or a huge negative for the stock. It is something which one needs to track closely.
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Having said that, a lot depends on how the retail and telecom businesses attain scale and potential post pandemic. A lot of work has gone into creating those assets but we are not seeing the full utilisation and benefit of the revenues from those assets, especially on the retail set up that they have done.
On the telecom side, there are some of the value added services which the company wants to offer to the merchants and to the country at large and various sectors including education and healthcare. As of now, a lot of the positives have got discounted and strategic initiatives are still work in progress and we need tangible results to take the stock price to the next level. We hope, Reliance does not become like a holding company as then the concomitant discounting of the subsidiaries will come into play. Also, the stock has run up significantly over the last two-three years or so.
There was a time when Reliance was the best stock to buy in the market and it was the only game in town but now, many ideas are floating around and therefore investors are moving away from Reliance Industries as well. It may not be a great company from an investment point of view, but nonetheless, if you are holding it in your portfolio, then remain invested. But if it is a case of fresh investment, I would perhaps think twice.
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