What has been your take away on ICICI numbers?
ICICI Bank results on a reported basis were pretty strong in terms of net interest margins. They have made good provisions for potential Covid losses as well. So the overall loan book and capital adequacy ratio continue to be pretty strong. They sustained gains in some of the segments of growth and retail is now almost 60% of the book. So we are seeing an inversion now where HDFC from being 60% retail is now around 43% whereas ICICI is more retail. This should help in the bank’s valuations.
The only challenge is 17.5% of the loans are under moratorium for the entire banking industry. ICICI Bank has about Rs 1 lakh crore under moratorium. How much of the loans under moratorium will actually turn NPAs subsequently is anyone’s guess. That is the challenge we are facing while evaluating banking stocks now. Overall, the entire moratorium story is a challenge for the entire financial sector. Even HDFC Bank has around 9% of loans under moratorium book but because it is a larger book size, it also has around 1 lakh crore of under moratorium. We do not know what happens after August, what percentage of it becomes NPA. That will keep financial stocks under check in the near term.
Directionally, I like ICICI Bank’s results.
A torrent move in Reliance is unlikely to continue. We have been discussing from last one month that if a stock goes from Rs 850 to Rs 1,600, it should pause but from Rs 850, it has moved to Rs 2,000 plus. If you are buying Reliance, you have to be cognisant of the recent rally. If you are not buying Reliance, you are perhaps missing out the best momentum in India’s large cap company?
Yes, the rally has been totally unexpected, at least to me. at this pace. Obviously with the kind of fund flows they managed to get in the Jio platform, some rally was likely to happen but Rs 2,100 was the target of many analysts, one or two years down the line or something which was totally difficult to predict. The reasons are tough to understand at this stage because one story was that because FAANG stocks are rallying and so Reliance, because of Jio platforms is rallying along with that.
Now, we saw a decent correction in FAANG stocks, but still Reliance continues to rally. It is more a thing about a huge number of people just getting into Reliance because that is performing and the banks and NBFCs — the fancied sectors of the past are not doing that well,
I was just reading that on the Robinhood platform in the USA, nearly 200,000 people bought Tesla stock last month itself. That demand pushed the stock up. I think something like this could be happening in India also where given the kind of account openings that are happening, the first port of call is Reliance.
This week we will hear from Amazon and Apple. Normally in India, we do not bother about what Amazon and Apple will have to declare, but given that NASDAQ is the powerhouse of all the action and Reliance in a sense is simply aping NASDAQ, do you think more than local numbers, everybody in India should actually focus more on Amazon and Apple numbers?
Reliance also reports this week and it has to be what everyone does now. In my view, the way the rally in Apple and Amazon has played out, if you see the result reaction of many of the other FAANG stocks, we have seen that post their results, they have ended up correcting — be it Netflix or Tesla which is not in FAANG, but effectively in that category. Microsoft etc have run up too much too fast.
Even technically, Reliance seems to be the most overbought it has ever been in history. There has been a huge concentration into Reliance. I think these gains should be sustainable. It is now trading far above its fair value.
The big news of course is Aditya Puri selling 95% of its holding in HDFC Bank and lots of chatter and lots of rumours are doing the rounds. Prima facie, how should an HDFC Bank shareholder approach the stock now? May be valuations are peaking out or should one look at this move as just a retirement plan for Aditya Puri?
It is tough to make a judgment but there could be two-three reasons; one is that he builds something now he is exiting HDFC Bank. He wants to exit it completely. That could be one reason which is fair because he built it.
The second is that he is unsure of what lies in the future once he moves out and there is a management change he is not sure about. He does not know how effectively, how well the bank will operate. That could be more of a concern.
The third rumour going around is that he is joining some rival group and to that extent, there could be conflict of interest which is tough to believe.
From the point of view of investors, I do not think that this should be a criteria to make a judgment on the stock. We let the next person take over and then see how it goes and then we will get to know whether there is a change in the way the bank operates or it remains the same.
Markets tend to think that when there is a change of managements and change of CEOs and chairman, banks tend to suffer. There would be a write-off, there would be kitchen sinking; but may I remind everybody that it has happened with some of the PSU banks and HDFC Bank in a sense is not a PSU bank?
Yes, I agree with that. I think it will be a huge dent on Aditya Puri’s legacy if he moves out in a manner where there they need to make greater provisions or come out with some details reflecting that the asset quality actually was not as great as what they showed under Aditya Puri. I would totally discount that. I do not think they would do this and to that extent, it should not be a concern for the investors. But like you said, the change in top leadership matters completely. People might argue about process driven organisations etc. but it really matters who the person at the helm of affairs is and whether the Aditya Puri premium reduces or goes away or remains with whoever replaces him is something which only time will tell.