Let us begin by discussing TCS itself. The entire IT space is in a bit of a tumble. This entire buyback news and the record date is finally out. It is November 25th. What would be your recommendation to retail investors? Should they participate in the buyback given it is at 20% premium to current market price?
This is the fifth buyback by TCS. In the last three years and each time you have given it and not bought it back, you have lost out on the opportunity of another 50% upside. It started from Rs 2,300 or Rs 2,500 and it has gone to Rs 4,500 which tells you that the company is extremely confident on a slightly longer term. I would definitely recommend that make use of this arbitrage but do not let go of this blue chip because if we can see the underlying sea change, it is telling us that bond yields and inflation may be past their peak and if spending comes back which is very much on the card, then IT will be again in a sweet spot. Plus it is a good alibi to a weak rupee and TCS is the greatest wealth creator of all time. I still think one should participate in the buyback but please buy back your shares because you do not know when the next buyback comes and for small petty gains, you lose out on a big blue chip. Stay invested and make use of this arbitrage.
What should one do with Bajaj Finance? This news has come in as a bit of a shocker but, of course, the company has been delivering stellar returns both in terms of stock prices as well as earnings performance. Should one buy into the knee-jerk reaction that we will see today?
If you see the underlying numbers also, it is just 2- 3% of the entire EMI loans or the cards which they have. We will get more clarity from the management over a period of time. But if I am correct, then it is how fast these KFT’s recommendations can be implemented, that may take maybe one quarter, but I would definitely think that that will be very fastly adhered to by the company. This company has stood for two things – one is growth and being innovative and second is quality of management which is unprecedented. So, this was really a shot in the blue but a large part of that will have been addressed by the management and given that this is an opportunity to get into the largest NBFC, I would use this decline to add on to this stock.
Anything from midcap IT? A brokerage is calling KPIT amongst the best within the midcap IT arena. Clearly, largecaps are not performing. Anything within midcaps that you like?
I have liked Persistent from Rs 3,600-3,700 level. It is at Rs 6,600, an all-time high. I still think that company is a must-have in your portfolio. It has been included in the MSCI indexes. Coforge is another stock which has no promoter holding and that could be a dark horse. But we want to remain with three names, Persistent, HCL Tech and Tech Mahindra. HCL Tech and Tech Mahindra among the largecaps are giving enough comfort on the valuation and the road forward. These two stocks can be a far better player than any other name.
In the whole IT underperformance, midcaps have been far better performers, if you just took the case of Persistent. So, Coforge is one name which we would go with. But like I said, there is a plethora of other stocks or opportunities. The recent case is Bajaj Finance. One observation which has a 3% impact on the overall revenues is going to cause some chaos and that is the opportunity you must look to buy.
The entire microfinance space has been reporting very strong numbers. There is this entire wave of new tech-based apps that we have seen and these microlenders are tapping into the digital data to pass through to their clients as well. Which names come to your mind?
AU Small Finance deserves a relook. It was trading below Rs 700. I gave that as one of my Diwali picks at Rs 670, 680. They are progressing very well on their digital apps. Then, look at AB Capital, that is another NBFC which has progressed very smartly and the sum of the parts it has got all the holding companies and the digital app, which they have recently launched, is doing extremely well.
After Bajaj Finance, you will find that AB Capital is making very much inroads into the small loan category and the MSME space, so that is one stock I would keep an eye out on. As a disclosure, this is another stock which we have in our portfolio ever since it was Rs 120 and we think that this is a very big wealth creator over a period of time as sum of parts of some of its holding companies and the new-age business which they are into.
Anything within the insurance space that you like? There are hotter sectors in the market to bet on, but particularly this.
You must see that there are three distribution channels. One is insurance, the other is AMC, the third is exchanges and fourth is brokerages and brokerage stocks have been through the roof. As a disclosure, we are also sitting on stock options in our company and we think that that is the way forward because these are conduits which are going to make money irrespective of where the markets are. Insurance is a no-brainer in the sense that private insurers are getting a very big chunk and their AP is only rising over a period of time. So, three names, SBI Life, ICICI Pru, and HDFC Life all in tandem could be very, very good wealth creators over a period of time and I still think this distribution channel, particularly brokers, exchanges, insurance and the AMCs are a very good long-term bet, given that the conversion of financial savings into equity and other products is very much a long-term process.
What is your take within the capital goods space? Would you go for the likes of L&T which also has an infrastructure theme or ABB, Siemens and manufacturing kind of names?
We like two names. One is Cummins, the other is Bharat Forge. Third is Thermax. L&T is in our portfolio. We are not increasing weightage. We will try and participate in the buyback for whatever it is. But L&T is a core holding of our portfolio. These three names are something which we would bet on. As for Siemens, I would say, let this whole imbroglio of the energy part getting split and so on get demerged, play out because that would put some cap on the upside since there are people who want to exit. But Cummins, Thermax, Bharat Forge and L&T are four of the choicest names. You can add an ABB.