Suffice it to say, it’s a big avoid for MFI right now?
Mayuresh Joshi: Yes, and with regulatory concerns still looming, there is always a risk that potential regulatory actions could cast doubts on how these balance sheets might evolve, especially in terms of earnings if restrictions are imposed. Within this space, however, some housing finance companies have performed well. At Marketsmith, we focus on leading stocks, so within the broader NBFC universe, particularly from a rural discretionary spending perspective, Chola Investment and Finance could be a strong option. Our analysis suggests that Chola’s exposure, its strong parentage, and its capital adequacy, reflected in Tier I ratios, point to decreasing asset quality pressures as the rural economy strengthens. Improved efficiency in collections over the next few quarters should positively impact asset quality, leading to reduced provisioning needs and boosting bottom-line growth, ROAs, and ROEs. Therefore, within the NBFC sector, microfinance is not advisable at this moment, but qualitative stocks like Chola are worth considering.
We have to address Asian Paints. The stock opened with a significant gap down and hasn’t recovered, trading 8%–9% lower throughout the day. What is your view on the paint sector and Asian Paints specifically?
Mayuresh Joshi: The sector’s volume recovery depends largely on demand from both urban and semi-urban/rural areas. Urban consumption patterns have been weak, but there is hope for a recovery in the second half, supported by an increase in weddings and the festive season. This could boost demand in Q3 and Q4. However, two major factors may offset these positive trends: competition remains intense, leading to potential rebates that could affect a major player like Asian Paints and the entire market. Additionally, although input costs have stabilized somewhat, any lingering stickiness in this area could keep margins under pressure. On the consumer discretionary side, there are better opportunities, and the paint sector may consolidate for now.
Let’s turn to capital goods. Despite some strong earnings, exports remain weak due to geopolitical tensions, impacting companies with exposure to West Asian economies. Is L&T still a buy?
Mayuresh Joshi: We maintain a hold rating on L&T. Most of their order book is domestically driven, with overseas projects primarily in heavy engineering and hydrocarbons, mainly in the Middle East, continuing at a decent pace. Recent data shows improvements in working capital days and expectations of stable margin performance across business segments such as heavy engineering, defense, and hydrocarbons. Domestically, their order flow should remain steady, and execution is progressing well. L&T, with its diverse market exposure and high-growth segments, remains a solid portfolio hold.
Lastly, what’s happening with Reliance? The company has lost over ₹4 lakh crore in market capitalization since its July peak. What are the main issues?
Mayuresh Joshi: The retail-focused segments, Jio and Reliance Retail, should continue to perform well, especially with the upcoming festive season. The recent increase in store openings and better fixed-cost absorption should support performance. For Jio, while there has been a decline in its subscriber base with losses to BSNL, it is mainly low-value customers leaving, and ARPU should remain stable, bolstered by qualitative customers. However, the upstream and petchem segments face challenges. With crude prices fluctuating and Singapore GRMs under pressure, the upstream business might encounter headwinds. Although alternative feedstocks could mitigate some risks, uncertainties, especially with China’s recovery still in question, mean the petchem segment remains soft. This offsets the stability offered by the retail business. While the long-term outlook for Reliance, including new energy ventures, is positive, short-term pressures continue to impact its stock price.