Part of money earmarked for financials may move into insurance: Hemang Jani

Whenever you see new kid on the IPO block, there will be positive excitement around it because merchant bankers would also have their bit to do in terms of pushing it, said Hemang Jani, Senior Vice President, Sharekhan, in an interview with ETNOW.

Edited excerpts:

History is telling us not to worry about elections and move on, but street beleieves we will take a view only post the election verdict. Why is that?

What is playing in the minds of investors is the fact that for almost about 15 months or so, there has not been any meaningful appreciation in the portfolios, if you leave aside the top four to five index heavyweights. The performance of the broader market has not been that great. When for an extended period of 12 to 15 months, the portfolio gains are mediocre, that definitely weighs on decision making.

Given the fact that even the earnings growth has not been that great and you have a major event coming up, that probably would put people into some kind of a tight spot. But if you look at the overall retail activity, particularly in March, mutual fund inflows have definitely improved. So, I agree that the participation has not been that great but given the fact that March has been a much better month and you have an event like election which would bring in a lot of volatility, retail participation from here on can increase.

There are no signs of a breakthrough when it comes to the saga at Jet Airways. Now it seems like the talks have really drawn a blank. There is going to be another crucial board meeting that will extend today. What is the worst case scenario you can think for Jet Airways in light of this?

It is a sad episode for the Indian airline industry that one of the best performing airlines is going through this kind of a period. The fact that it is taking more time to get the funds and to bring in a new investor, is not boding well for the company because international operations have been halted and if they are not able to get the intervening relief, then there will be question marks on domestic operations also.

It is not a great news for the sector per se and let us hope that over the next few days they are able to at least get some fund infusion. If a very strong investor comes in, then the stock can start stabilising from here on.

The entire Nestle India royalty is not as bizarre a case like Jubilant Foodworks and a royalty here is only justifiable, but would it go down well with minority shareholders if the quantum is a little too high?

This royalty issue has always been there for many of the MNC companies and whenever there is some increase or a new proposal, there is going to be a lot of media hype around it and there can be a bit of a negative knee-jerk reaction. But the companies are very strong and they enjoy a brand and product franchise. I do not think the market is going to be too much worried about it and in case of Nestle, last year has been good. They have been able to win the market share. The entire controversy around Maggi has died down. and the company has started really doing pretty well on the volumes front. I do not think we should read too much negatively into this royalty issue at this point of time.

Suddenly there is a lot of interest in the insurance space. Is this a pure rotation, a migration of flows not by choice but by compulsion?

It is possible that some part of the money which is meant for investments in the financial services space could move into the insurance space. For the last couple of months, we have seen major deals happening over there. In ICICI Pru, we could see a big investor coming in and from there the stock has recovered.

The larger issue for the insurance company has been that a company like Prudential ICICI which has a larger dependence on the ULIP related products. There is a sense that dependence will go down and overall in the pure term plan segment per se, the companies are delivering a very healthy growth. A combination of this new money coming in and the fact that with the ULIP related issues have actually played out, people are becoming a little more positive and partly also because some of the companies could be included in some of the indices where the rebalancing is happening will also bring in an element of new flows.

A combination of these factors are playing out and we continue to be positive on that sector. Our preferred stock is definitely Bajaj Finserv which has general insurance as well as life insurance and is quoting at a discount of about 12% to 15% to HDFC Life and ICICI Pru.

It is good to see that the IPO market is thriving again. The subscription numbers were absolutely amazing. What is so unique about Polycab India? Why is there was so much interest in a business which is more a B2B and less a B2C business?

The product range and the business model of Polycab is pretty similar to some of the names like Havells or V-Guard or KI Industries, Crompton etc. with consumer products a decent amount of volume growth of about 12 to 15%.

Polycab could be one of the companies that will fit into that particular segment. They have a very decent market share and they are also moving into those newer categories where growth could be in excess of about 12-15%. The market at this point of time likes to move into these kind of niche companies with a decent amount of brand volume growth in excess of 10%. We have not had any major IPO pipeline because of the weak sentiment in the broader market. Whenever you see new kid on the block, there will be positive excitement around it because merchant bankers would also have their bit to do in terms of pushing it. It could be a decent company from investor perspective.

Who is buying Tata Motors?

If you look at the last monthly numbers particularly from the markets like US, UK and some of the other markets, the data has shown a marked improvement. Also, after the S&P downgrades, the management came out and gave a positive guidance in terms of their overall growth and the sense one is getting is that after such a huge underperformance, finally the stock has started catching up on the domestic market because of the product rollouts that they have had, met with some amount of success.

I think some people might be taking a call that the worst is over in terms of operational performance and price performance and risk rewards looks better but it has been the most difficult stock to track in terms of what is really happening. We have always had a neutral stance on the stock for quite some time and we continue to remain that way.

What is your view on Dr Reddy’s? Their Bachupally unit, which accounts for 45% of the US revenues, has got an EIR by the USFDA. Would you be willing to buy DRL just yet?

Yes, this development is quite positive because the lifting of the warning letter or this EIR that they have got for Bachupally is definitely important. What is more important is that within a very short timeframe, they could actually bring in this particular EIR and overall, most of the pharma companies the US business is stabilising and on a quarter-on-quarter basis, there has been a decent amount of growth with margin and outlook continuing to be good.

Some of these stocks present a good investment opportunity and we expect even DRL to do well from a 12-month perspective at current price point.

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