IT pack on radar, bullish on one: Inditrade

Some of the judgements coming in Vodafone Idea’s favour will help their cause. They have to attract a bunch of new investors and a lot of capital to survive. On the other hand, for an investor with a little time in hand -- maybe six to nine months -- Bharti Airtel is a great buy at current levels, says the Group Chairman, Inditrade Capital.Why would somebody be selling banks when institutional investors are optimistic, funds are overweight and brokerages are telling the clients to buy it?It is a combination of a couple of factors. First factor definitely remains that there is little bit of risk-off mood amongst the foreign investors and they did quite a bit of selling over the last three-four days. They would have sold around Rs 10,000 crore worth of stocks in the last three days of last week and that definitely impacted the banks. It is on the back of the fact that they have a significant weightage on the financial services and the banks. So when they are selling obviously the banks get sold. The other important factor is that there is a lot of uncertainty surrounding the entire banking space even today. The Supreme Court decision is pending. There is a question mark over this issue of interest and interest on interest. There is confusion over the moratorium period interest and that percolates to the ground level as well. The sooner that is put to rest the better it is for the banks and financial institutions. Second, there is again a big question mark on the asset quality. A whole lot of figures have come out on a daily basis regarding the monthly collections and improvement in the asset quality but a big question mark still remains. The large banks have raised quite a lot of money and that acts as a cushion. But if they have significant asset quality problems, that impacts valuation. So there are these uncertainties which are creating confusion in the mind of investors. So they probably are flocking towards what looks like a little bit of a safer and growth-oriented sectors which are IT, pharma and FMCG. A shifting of sectors is also happening here. People are buying IT, pharma and select FMCGs and probably exiting or lightening their position in banks. What about telecom? The most recent data shows Jio is on top once again. Bharti was up 5-6% in a falling market on Friday. There is still a lot of value being associated with what could potentially be the outcome in the future.I will make a couple of points. a) I am bullish on Reliance and I have been bullish on Reliance for quite some time and I still maintain my bullish view. So leave that aside. I am not saying Jio will not do well. But the fact is Bharti also will definitely do well and there are a few facts which I would like to highlight here. Look at their non-India business which is predominantly Africa and that has improved significantly over the years. The ARPU there has improved significantly. That business is working very well for Bharti at this stage. The second issue is what is going to happen to the post paid customers in India. We have seen the game getting played out in pre-paid and with Reliance Jio’s aggressive pricing, is Airtel going to lose out on post paid customers? The way the post paid customers behave, I do not think we will go and change our numbers or change our service provider just because we are getting a monthly discount of Rs 100. It is much beyond that. So I do not believe there will be an exodus of customers for Bharti Airtel to Jio so soon and something more needs to be done by Jio to get that customer base. So imminently there is no threat. The third thing which is the biggest worry in my mind was what happens when the next round of auction starts? Whether it is a 4G afresh or the 5G ones. Reliance Jio has a huge war chest. Does Bharti have that war chest to bid and get this spectrum if they want to remain competitive? I think the answer is yes on the back of the fact that they have a balance sheet which has mended to a great extent and also the backing which they have in terms of their one of their principal shareholder Singtel. A combination of this is good and at this stage, after the sharp correction over the last almost one month since that AGR ruling came, Bharti Airtel looks attractive at current valuation. For an investor with a little time in hand -- maybe six to nine months -- it is a great buy at current levels.Unfortunate as it may be for Vodafone, whether or not it makes a meaningful investment call depends on the rulings, the AGR dues and some of these cases like them winning the arbitration case and a sizable sum at Rs 20,000 crore?Absolutely. Vodafone International has indicated they are not going to invest. Maybe, the Birlas also will not make further investment but the case for investment by other investors and maybe the sovereign funds or other strategic players will only arise when there is not much more clarity on the operational side and the regulatory side as far as Voda-Idea is concerned. What is more worrying is that unless this clarity emerges soon, operationally they are bleeding. They have been losing customers, ARPUs are not going anywhere and with Reliance Jio launching the attractive and aggressive plan for postpaid customers, they could lose customers. The service quality also is not probably up to the mark and all this does not augur well. The sooner they get it right, the better it is. Yes, some of these judgements coming in their favour will definitely help the cause. They have to attract a bunch of new investors, a lot of capital to survive. It seems the entire disinvestment process is now going to be pushed back to the next financial year. That jeopardises the PSU investment case.The way things are panning out 30th September for BPCL is looking unrealistic now. The deadline getting pushed by about a month, a month and a half is okay but it does really get pushed to the next fiscal, that will be very sentiment negative for the overall fiscal and the government disinvestment programme. The government and analysts and economists have been pencilling a significant amount of proceeds coming in from disinvestment and BPCL being a strategic disinvestment, getting a strategic partner there. It is to be a showcase transaction and that not happening definitely is a dampener. So I hope that that does not happen. A delay understandable considering the complexity of the transaction, considering that Numaligarh Refinery has to be carved out, considering that we are in a Covid mandated lockdown and a slow pace of work scenario. But getting it pushed back to the next fiscal is disastrous. Anything that you are keeping on your radar to buy into the bounce or perhaps even profit take?Not profit take at this stage, we are looking at the entire IT pack and we believe that HCL Tech even at current levels is definitely a good buy. They have been buying smaller companies in different parts of the world. Earlier this week, they bought over a company in Australia, now that brings in about $100 million plus turnover but it is also that turnover or the profitability of around 9-10% of that company. It gives them an entry to the Australian and New Zealand market and that is very important because it is a large market. Similarly, HCL Tech has done multiple other smaller transactions which puts them in a different position to service clients globally and in today’s post Covid world, digital is the way to move forward and HCL is very well positioned. Also remember this is one IT company amongst the top companies which has focussed on products quite a bit. It is not only the outsourcing or the servicing part but the product basket which they have developed is also quite commendable. We are bullish on the company and investors can buy in at the current levels with a target of about Rs 1,000 in a year’s time.

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