IT and banking stocks poised for recovery after market slump: Dinshaw Irani

"And frankly, the largecaps, I mean, look at the fact that after the 13% odd correction, you are already looking at 18, 18.5 kinds of forward earnings for that bunch. So, it was obvious that things are looking too, too bad. The panic was on the street at that point in time. And we took a very proactive call. In fact, on Monday itself, we started picking up some few names," says Dinshaw Irani, CEO, Helios Mutual Fund.

What should one imagine where are markets headed now?
Dinshaw Irani: Well, you said it very beautifully, that when the markets reacts. I mean, basically, it is positive news honoured very well by the markets. So, basically, that is how it is. The markets are tired of seeing corrections. In fact, I was just looking at the data points, which my analyst came up with on Monday, because we were also panicking that day and we looked at the correction from top to bottom.

So, the index, I mean, the Nifty 50 had corrected some 13%. The median correction, however, within the stocks was 19%, which is not too different from the index. But once we looked at the 500, the Nifty 500, the median, the actual correction was something like, I think, 15% from the peak to bottom and the median correction was almost 30% in the stocks.

So, it is obvious that some of the stocks would have collapse 50-55% kinds. So, it is obvious that there was a lot of panic happening.

And frankly, the largecaps, I mean, look at the fact that after the 13% odd correction, you are already looking at 18, 18.5 kinds of forward earnings for that bunch. So, it was obvious that things are looking too, too bad. The panic was on the street at that point in time.

And we took a very proactive call. In fact, on Monday itself, we started picking up some few names. So, as I said that we finally decided that let us start adding to this. This is too much panic on the Streets and at least in the largecap space.

So, we added to our favourite IT names, we added to our platform companies, not that they have done much, but that is how we went about it.

You have been talking about financial so much so that Helios has launched a banking fund and now banks have started outperforming. For somebody who is watching the show and now that he knows that you will be coming to office tomorrow also, but if they want to know that beyond that, is it time now to let us say start a SIP in only banks as in like start a Bank Nifty or dedicated SIP for banks only?
Dinshaw Irani: So, basically, if you remember the rally started with that one single statement from RBI saying that look, I am biting the bullet, I am going to infuse liquidity. I do not care about the rupee, I am going to in fact, buy dollars and throw in the liquidity of rupees as such.

So, that came on Monday evening and since then, the sector as if anything has done fairly well from that level onwards, because that was what was constraining the sector, the liquidity, the way it had been sucked out of the system to manage inflation and the currency, I think that was too overdone by the central bank and I think finally they came up and said, okay, fine, let us do this.

So, now from here onwards, in fact, we have seen this in other markets also, whenever the economies are picking up, these are the sectors which do very well.

I mean, the lenders and as well as the non-lenders. And within the lenders, we are very comfortable with the consumer banks. They are also selectively though because some of the consumer banks have gone into microfinance and massively overbought on unsecured lending.

So, there we are cautious. But the banks with good franchises that we are very comfortable with. And coming to the non-lenders part, the ones as we keep calling the gatekeepers to wealth, which is your exchanges or the RTAs or for that matter, they will have blips in between.

But I think that sector is going to do very well. So, I agree with you, this is the way to go about. I mean, in fact, these are the times when the SIPs can really generate positive alpha going forward, I mean massive positive alpha going forward.

So, you are right in saying that this is the time to get into a financial services sector focused fund which will help out. And ours in any way is a very true to label fund. We do not have a single stock outside financial services within that fund.

I have just one more follow up question which is that if one looks at financials, last three years, banks have underperformed, NBFCs have underperformed, largely lenders. But financial intermediaries have done very well, mutual funds, brokerages, depositories. So, as a category now, could it change in favour of lenders completely?
Dinshaw Irani: Yes, actually, you are right because the outperformance of the non-lending part, which is the intermediaries, as you call them, that has done very well. In fact, as I said, that that was the one which is propping off until now and now it is the other way around.

The tables have turned and it is the lenders which are going to partake in this. And frankly, as I said, the overload on the lenders was that they could not raise deposits at a good price.

I mean, you have seen that in most of the names, the deposits growths were there but they could not, they had to constrain back on the lending part as such because they were not comfortable with the way the thing was going and they were looking at their loan deposit ratios and stuff like that, I think that is out of the way now for most of these guys and frankly with liquidity coming in, it will be much more easier for these banks to raise deposits at good rates.

And going forward, obviously, the NIMs also will look fairly exciting. And frankly, interest rate cuts, anyone can speculate. But our feel is that given so much of infusion of liquidity in the system, I do not think RBI will be proactively looking at interest rate cuts right now.

They will probably wait for this to see how this liquidity is absorbed and then probably take a call later. I do not think this next week, when the RBI meets for the great sitting, I do not think that is going to happen there, but let us see how that goes.

In the recent fall in the markets, how did you play that? Did you go ahead and increase your exposure in any of the names or sectors if you may highlight? And since we also know that you also have exposure in some of those high beta names, which have seen a bit of a correction, maybe on the back of the earnings or in the back of the market volatility, so what was your strategy being and how did you play the markets?
Dinshaw Irani: So, as I said that when I tell my investors that, look, this is the time you can really get good alpha, so do not do sips.

Obviously, we also follow that same policy. So, as I said that Monday was the worst day, I mean, as in the way the indices collapsed and it was looking like panic. We started adding not from Monday onwards, we added earlier also. We started, we added to our IT names which we liked, we have been liking them for a while, and going forward they do fairly well.

So, some of the largecap IT names we added to. We did add to our midcap IT also. We added to our banking names little bit. We were nibbling in those names as such.

Then, as our platform companies, quite a bit of collapse in those names, so there also we added a bit, again very selectively, not across the board because we were looking at value somewhere so that way.

And frankly, we have always been looking out for ideas to add to our portfolio because this is the time, actually, our feel is that this year itself is going to be a stock picker’s year.

So, you will get your time, you will get your time to accumulate your stock, you will get your time to identify the stock, because I do not think the markets are going to go anywhere from here onwards also.

And our feel is that if anything, probably second half of the year is when the real upside you may see going forward.
So, our feeling is that the first half, maybe just a time correction, given that the fundamentals are not picking up as much, but the values have corrected, so that is how it is.