ET Now: What is your take on cement as a pack and do you have a favourite within that?
Sandip Sabharwal: Cement industry is very interestingly poised today because on one side, costs are coming down and helping the profitability. On the other hand, there is decent demand but the supply increase is much more rapid than the demand increase. So the cement players do not have pricing power at this stage.
In the next three, four years, the capacity addition plans are very aggressive. My guess is that the valuations are high at this point of time. So we need for valuation modification to happen because after this initial phase of benefits due to cost, benefit goes away. Without pricing, the profitability will not sustain.
ET Now: You have been quite vocal about your disinterest in the IT recovery that we were witnessing. What do you think will change your mind in terms of the management commentary or anything else that you are watching out for specifically?
Sandip Sabharwal: Management commentary in IT is irrelevant as far as the largecap companies are concerned. But we have to watch the macros, how the US and Western economies are doing and then can we realistically see the uptick happening. Now, at this point of time, the economies are slowing down and the probability of growth being actually slower is much greater than the growth accelerating. So I would not be interested in any of the largecap IT stocks.
Some selective midcap IT companies are doing very well, like those which have distinct business or like KPIT Technologies or like BirlaSoft reported very strong results, etc. There, investors can selectively invest on corrections.
ET Now: What is it that you have been doing in the last past one week when it comes to your banking holdings or positions particularly?
Sandip Sabharwal: We hold ICICI Bank, which we continue to hold as the biggest holder. We have Axis Bank where I think the investors have got concerned in the short term because of the slow growth prediction which they have given for the industry, which I think is prudent. And we continue to hold that. Ex of that, we are not holding any other banking stock. If HDFC Bank comes to around Rs 1300 levels, I would be interested.
ET Now: But what would be that trigger where you would trim your positions even in an ICICI Bank or an Axis bank? For now, you do not see any but if indeed this liquidity crunch that banks have talked about across the board from an IDFC to HDFC Bank worsens in the next few quarters, what would you be looking out for?
Sandip Sabharwal: The liquidity crunch is not sudden. It is in the hands of the RBI. The day it wants to increase the liquidity, it can. So they are deliberately holding it up so as to control inflation because they believe they can control inflation via tight liquidity, which I do not think they can but that is their thinking.
So we have to live by it. My guess is that the next one or two quarters will be up for the banking industry, more for PSUs, less for private sector banks because the NIMs of the PSU banks will get more squeezed than the private sector banks. But then we have to ride this out. My base case is that both ICICI Bank and Axis Bank can correct 5-10% from here. So just for that 5-10% correction, we cannot be selling and buying.
ET Now: I wanted a quick word regarding this urban consumption theme. Metro Brands suddenly saw a huge spike on Thursday. Vedant Fashions is higher by around 6% as well. Would you buy any of these names?
Sandip Sabharwal: Metro Brand results were not inspiring, their outlook was not inspiring, so this move is very tough to understand. I think its valuations are very high. Vedant Fashions has picked up quite a bit of gain, like 50% off from the top. So it will become interesting at some stage. I was looking at actually, but it still trades at around 50 times earnings. These valuations are not so keen.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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