Home > Finance > Still sceptical about SBI based on historical trends: Sandip Sabharwal

Still sceptical about SBI based on historical trends: Sandip Sabharwal

Still sceptical about SBI based on historical trends: Sandip Sabharwal 2

Putting restrictions against imports to boost manufacturing in India may backfire and we should not get excessively excited on this issue, says the analyst, asksandipsabharwal.com

State Bank of India came out with good numbers, especially on the moratorium front. They have a historic loan book which may not be dominated by the salaried class and yet they have the best moratorium in the industry. It is quite a feat, isn’t it?
We have to see it in the context of what the book was before this entire moratorium thing started and as a percentage and absolute numbers, it is still very significant. I would think that around 15-20% of moratorium book will ultimately go as NPA and for SBI, if that actually happens then they will need to go in for significant capital raising because unlike most of the private banks, like ICICI Bank or HDFC Bank, they just have the minimum capital at this stage so they will need to raise capital and a substantial amount at that.

The SBI commentary in the past has not been very reliable because at the end of every quarter they say the worst is over, but then the worst does not tend to be over. I would still be cautious. If whatever the largest bank of the country is saying actually comes true, then there is value but I would be sceptical based on the historical trends.

Tata Motors has become more of a forgotten stock. The fact that the numbers are bad is something the markets knew, but do you think a lot of bad news for Tata Motors is in the price?
I will start with a disclosure that we bought into Tata Motors last week, expecting a short term 20-25% kind of return. I am not taking a long term bet right now. I would agree with you and that is my thinking process also that a lot of negatives are in the price. The reported numbers did not give any further negative surprise.

In terms of cash flow, the results were fine and if the Chinese growth momentum sustains, then we could see Tata Motors, JLR specifically, do better than what people are expecting. From the current levels, a decent short term trading view can be taken. We have to continuously evaluate if it will sustain in the long run or not.

You have been quite vocal about why you have not really liked the market. Are you still sitting on cash or have you identified any bargains in this market for your long term portfolio?
Last week, we added two stocks which we were already holding to the long term portfolio further. The results from two consumer companies — Asian Paints and Dabur — were very good in the context of the market. Their guidance is strong and their product profile and the market positioning is playing out in a manner where they could gain some market share going forward. Asian Paints reported a 14% volume growth for June. They indicated a similar growth for July which is totally beyond what I was expecting prior to the results.

At least on paints, people will be very sceptical getting their houses etc painted but a market share shift is clearly happening. In the case of Dabur, it is more about the company transforming into a FMCG company which should ideally get PE ratio in line with some of the other larger FMCG companies. These stocks are not cheap, but in the current market context where the economic outlook is still volatile, these two have an absolute return potential of around 15%.

In order to give a manufacturing boost in India, there’s a ban on imported televisions. A change in policy could come for furniture and toys. These are not small changes. Indian manufacturing will have to improve and that could be applied to toys, textiles. So considering this is a big theme, how can one participate and make money?
Most of the companies which will come in and start manufacturing these products effectively might be the MNCs themselves and would be largely in the unlisted space. There could be some component suppliers which could benefit or consumer durable companies like Voltas, Havells or Dixon, which does a lot of contract manufacturing. They will benefit. But for this to be effective, the manufacturing has to be cost effective in India.

Secondly, if we put so many import restrictions and duties, then there will be repercussions as far as other countries’ actions on Indian products go. We have to take it in that way. I personally do not believe in putting restrictions to get domestic competitiveness. Domestic competitiveness should come through incentives and the country being competitive by itself. For example, in the technology sector or the pharmaceutical generics where we are competitive despite restrictions. Those are the issues we will face and this will be a long-term story. In the short run, I really do not see too many beneficiaries.

Indian pharma is not completely untouched. Global companies have shown preference for local manufacturing if you have a tender. Globally, there is also a concept of crawl back tax. So some would argue that it is a global phenomenon, it is not a local phenomenon to promote local manufacturing.
It is global but what we have seen historically in India during times of crisis, there are investments fears where lakhs of crores are committed but ultimately the follow-throughs are limited. So we need to see the effectiveness of this. If the US actually goes ahead with local sourcing norms, then it could actually hurt the Indian generic companies substantially.

Secondly, we need to understand that when we put restrictions on imports of other countries, it is not that they will not act against us. These need to be balanced and that is the reason WTO is there. So getting excessively excited on this issue is not the right way to go.

It has been a very tough time for a lot of the auto companies but despite that on a month on month basis, we are seeing things ease up. Auto sales numbers in the month of July have shown a growth. Are you convinced by the mild recovery that we are seeing for autos or do you think that there is still a long way to go?
A large part of the recovery is already in the price. Hero MotoCorp, Bajaj Auto — the two-wheeler stocks — have rallied much expecting a recovery. Out there, it could be muted but Maruti numbers were pretty decent. So, we could see a positive move.

What about the buzz that we had seen about BPCL divestment that had fuelled quite a rally in the stock? How are you looking at the oil marketing space and specifically BPCL?
The companies are in a tough zone right now. After the recovery in June and July, the recovery seems to have faltered. I was just reading the figures today and diesel sales are down 25% year on year and down month on month also. Petrol sales are flat. They are in a zone where they are fairly valued expecting a disinvestment if the disinvestment does not happen they seem to be overvalued. The biggest issue BPCL disinvestment faces is the price itself. If the price goes up too much, it will be tough to sell. So hopefully, the price will moderate and the government will be able to sell. That is how we need to watch it.

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