Why Sanjiv Bhasin is bullish on these 3 bank stocks

Do you think the market is providing a buying opportunity?
I can sum it up in two words ? capitulation and despondency at its highest in the broader market and a flight to safety in a handful of 20 stocks. How long can it persist? Look at the changes in macros. There is a strong push from the government on infrastructure, irrigation and now, railways. Telecom sector is also coming out of a deep hiatus of price destruction which should be a very big positive for banks.

Also cost of money lending and mistrust is coming to an end. I can stick my neck out that November onward, we should see the beginning of an extremely positive bull market with the broader market participating. I know it is difficult to put your money where your mouth is, but a large part of the midcaps are looking extremely oversold and extremely valuation accretive which can give you the best run for money in the next 18 months.

Let us not look at the next week or the next two weeks, but I am very confident of a 18-month view on the broader market. I would still say that in the first ten days of November, Nifty should be at 12,000 and the real effect will come in the broader market as we see outperformance head into 2020.

What have you made of TCS as well as IndusInd Bank?s numbers?
It is a case of glass half full, half empty. TCS has been one of the largest wealth creators but there has been a visible slowdown. Only thing is the stock was much over owned before and hence this one quarter is being taken to be quite a systemic weakness. I think the best of IT may have played out. If I am bullish on the market, it is more on industrial banks and hence we have an underweight on TCS.

In the recent past, anyway Infosys has narrowed the gap and taken more of the price movement. TCS for us would be equal weight.

The other part would be the weakness in IndusInd Bank. There are three reasons for that ? one is that we know that they are the largest lender in the CV cycle which has seen a slowdown. Two, some of the provisioning which they had, may have peaked again. Also, the merger with the Bharat Financial is starting to play off on the positive side.

We are expecting the next 18 months to be extremely positive on the markets hand ence for us IndusInd Bank becomes a very good play with a slightly longer term view. In the short run, Rs 1,200 may be the base support but come November, December and the next quarter of 2020 and you should start to see much more outperformance from IndusInd Bank. So a buy as a recommendation.

What will be your view on Tata Motors?
The worst may be getting priced in. Now the positives are that if you do get a huge breakthrough in the US-China talk, then China is where JLR is looking forward to a huge impetus. We think that that could be the real elephant in the room. So any headway between these countries would be a big positive for Tata Motors.

Second, there is again a talk of a bounce-back in some of the European markets.

Thirdly, the CV cycle may be definitely seeing much more uptick from government spending from November. You will see a lot of L1 contracts, a lot of infrastructure spending and that should see the CV cycle do well. As a disclosure, we have a buy on Ashok Leyland in the CV cycle. Tata Motors is more of a trading play, but this is a proxy to positivity in the US-China talks and if that makes headway, I do not rule out a target of Rs 150 coming by the end of the year.

How do you see banks performing?
We have seen that a large part of the pain has been on most of the real estate, builders/construction companies and that is where most of the banks have underperformed. I think that corporate banks have been leading from the front and will continue to do so. We are painting all banks with one brush. PSU banks should do exceedingly well, given that they have been recapitalised, bond yields are at a three year low. So, treasury income should be much better than expected and thirdly, asset quality weakness may have played out.

IDFC First, Federal Bank are two marquee names and can do extremely well. Also I would like to point to Bank Nifty volatility. Volatility is very good if you are a trader, but it hurts the investor and I think this weekly expiry is adding to more confusion. Globally there are options for three months, six months, nine months, 12 months expiries. The action of the regulator should be to give longer dated options which will give less volatility but safety and which will take care of these intermediate everyday lapses of 1,000 points which is hurting the market sentiment.

I think the Bank Nifty?s pessimism is overdone. We would think targets closer to 31,500 by the end of the year are very much on the cards. Hence as a SIP, this would be a very good instrument to purchase over the next few weeks or months.

You just mentioned a few names. Can you give some of the other names from the mid banking space?
Like I said, IDFC First and Federal Bank stand out over there but my top pick in the largecap would be Axis Bank. They have raised capital at a premium, their asset book has been extremely positive after the last two quarters and going forward, credit enhancement for them will be very strong.

The other name would be State Bank of India. At Rs 245, you cannot go wrong. That would be a very prudent name to add. The downsizing in RBL Bank has today made it at one time price to book. Risk reward is good but because it was over owned and there is murkiness on some of the names where there is the risk of default and the selling is overdone. If you can withhold the negative sentiment at Rs 265, RBL can give you a 25% upside in the next one year.

When we look at RBL, don?t you think that capital raising is a big thing? There are a lot of companies that have not been able to raise capital despite having a good stature. Is that something that you would wait and watch as you said for Axis Bank? They have been able to raise capital. Is that a big risk for RBL?
No, I do not think so. Mr Vishwavir Ahuja had said that they have taken a precautionary measure and done provisioning where they do not see that happening. When he came back on TV two weeks back a) he reiterated that there is no risk of that provisioning taking place, b) I think they are well capitalised and c) like I said the risk reward is also in the price. In the end, we are there to make money. Rs 265 becoming Rs 350 may be a very viable option for this bank. d) I think the mistrust more relates to the NBFCs and quality banks with a good franchise like RBL should not have a problem in raising money.