Buying the dips? Gurmeet Chadha picked up stocks in these 4 sectors

If crude was at $120, nobody would have been smiling. Have you used this decline? Have you reduced your cash levels in a substantial manner?
We have been deploying cash sequentially with every dip. Fortunately for us, because we had launched the PMS strategy about 50 days back, we had good inflows and we have been putting it to use. We are currently still at about 35% odd cash levels. We have used the dips to buy and we have been buying private sector banks. They were available at a very reasonable price. The risk reward was pretty favourable in a lot of large private sector banks and a couple of PSUs including

.

We selectively bought into IT as well. I am a believer that this is a multiyear trend in IT and the programmes will be reprioritised and there will not be any slowdown as far as the IT spending goes. We also looked at some auto plays as a basket including OEMs and ancillaries and we were buying some energy names playing the wider energy basket.

How are you reading into this EV foray for M&M? Where does your preference lie? You are very selective when it comes to the auto space owing to the kind of troubled times that we have seen of late?
Yes, you are right. It is pretty constructive as far as M&M is concerned but we have to be careful that it has run, especially in the last three-four months. In the last one year, the return is almost 50% with the stock now at Rs 1,100 plus levels.

This, I think, would be the template. Earlier it was Tata Motors and then M&M created an EV subsidiary. This business requires accelerated investments over a long period of time. I am not comparing it to Tesla but how the template is posed and this current model of leveraging the entire M&M ecosystem, their asset pace, their sourcing ecosystem, their dealer system financing, everything is a decent model because a lot of synergies would be needed there.
Also, M&M in FY15, had a SUV market share of almost 35-36% which they lost and it came down to about 14-15% a year back. I think they are getting it right. According to the SIAM report, the largest selling segment now is clearly SUV and UVs and by 2027, they expect it to be more than 55% and M&M clearly is a leader there.

They have done the product laddering very well. It starts at about Rs 12-13 lakh, goes right up to Rs 25 lakh. In the D-segment, they have Scorpio and then there is this rugged segment, where they have Thar and then the entire XUV series. Even now, in the second half, the farm equipment business should do well but one has to be mindful that the stock has run up.

So, create a basket. I have a couple of OEMs like M&M and Tata Motors. Also look at some of the auto ancillary players where the kit value is steadily going up. Minda for example had only Rs 3,000-4,000 kit value per car which only comprises very selective components like switches and they are now aspiring at about Rs 35,000-40,000 kit value comprising a whole host of components including the EV components.

Also, some of the related plays like the ethanol plays are there because there is clear visibility of ethanol blending at 20% creating demand for at least Rs 20,000-25,000 crore of new ethanol plants both first generation and second generation. So, something like Praj can be played through a basket approach rather than selectively picking one.

What about some of the QSR and the discretionary space stocks like , , and ?
We are pretty constructive on QSR.

has its share of management exits including the recent one of Mr Kohli joining and I think the stock publishing the SSG numbers which took the street by surprise. But we see some stability coming with the new CEO. I call it a consumer tech company within the food space. If you see the way they pivoted the business around the delivery model during Covid, reducing their dependence on dining is commendable.

More than 50% orders still come on their own app. They use some of the best advanced data analytics and so dependency on the aggregators is less and they are coming up with new store formats, so typically the best on SSG. We continue to like Devyani International with continued growth as well as per store sales in both KFC, Pizza Hut and Costa.

We also like some of the in home consumption which is something like a Tata Consumer, where premiumisation is playing out in all food items. It is not only confined to just tea, coffee. We are seeing that in pulses, spices, dry fruits and that premiumisation clearly is playing out and hopefully, Starbucks also was EBITDA positive last quarter and should start contributing to the bottom line.

So we like a combination of the few names but we just have to be a little careful about the valuations because in a market like this, when the 10-year government bond is 7.5%, the discounting rate goes up and that is the time you have to be a little careful on the risk reward thing. So unless you get bargains and if you are holding them, that’s good but in terms of fresh additions, there are better opportunities.

Meanwhile, within the banking space, what is it that you are pencilling in when it comes to the Q1 FY23 numbers?
One has to be selective. The larger private sector banks offer better risk reward. From FY15-16,

retail loan book has increased from 34% to almost 55-56%. They have made the book granular and when the retail loan goes up, the fee income also goes up.

A bank typically has three incomes which are – net interest income, fee income and treasury income. ICICI is doing very well. Even last year, their credit growth was 17-18% with the retail portfolio doing 20%. Their cost of funds is the lowest in the industry at 3.7%. It is almost comparable or better than

. The asset quality has been improving which again is a function of how granular the book is and they have been leveraging technology very well.

I was seeing the percentage of PL cards being digitally originated. Their numbers are pretty good. I am very impressed with the InstaBIZ app as well. That is one bank which will continue to do well. It is a great turnaround story which we have seen in the last three, four years.

Even for SBI, the home loan book is Rs 5.5 lakh crore with a CASA mix of 44-45%. If you have a high CASA book, lower cost of funds, the loans are largely linked to external benchmarks. In the case of ICICI Bank, 72% loans are linked to repo and MCLR and external benchmarks which means the loan prices get reset and the cost of funds do not go up and so we will see an expansion.

There may be some bargain buys at the lower end in banks with large NR books. Following the recent RBI norms relaxing some of the provisions related to NRE deposits and cap on interest rates, banks with strong NR books would also be in focus. But one should stick to the larger names. One can also look at some of the other financials like

for instance or some of the names like .