Would HDFC Bank, Bharti Airtel make good bets now? | Economic Times

If insurance stocks correct more, then they could give an opportunity for investors who are looking to invest for one or two years, says Sandip Sabharwal of asksandipsabharwal.com.We have seen a bit of traction come by this week, specially in HDFC Life. There are two parts of this story in insurance as a whole -- life and general. What is your take on the insurance stocks in India?On one side, the long-term growth prospects are very strong because of the fact that insurance penetration in India is still suboptimal. It is not as suboptimal as it used to be a decade back but it still has a long way to go because there are still lots of uninsured people. Secondly, the way insurance was sold in the past and the changes that are getting made, are yet to play out. So that is one part of the story. The second part of the insurance story has to do with the valuation story and the provisioning required because of Covid etc, which is event based and cannot be extrapolated because that does not impact the long-term mortality rate of the country. But on valuations, these stocks are not cheap and that is the key issue. At this point of time, as far as insurance companies go, because the valuations of most of these companies -- be it HDFC Life, ICICI Pru -- which used to be cheap but is no longer cheap -- or SBI Life are very expensive taking into account annualised premium equivalent or the new business premium into account, moving into the COVID hit quarter of last year. Growth adjusted, these stocks are not cheap but they tend to be contrarian movers to the market. So when markets are weak, these stocks typically hold on and they do not do as well when the markets are moving up. In a corrective move, they could hold on but not absolute gain wise. I would still think that if these stocks correct more, then they could give an opportunity for investors who are looking to invest for one or two years. For investors with a longer term horizon of say five to ten years, they will still make money even if they buy at these rates. How do you think the market is reading into fundraising plans of Bharti Airtel? Seems like not quite well. looking at the price action in the stock today?On one side, we have lots of IPOs getting lapped up at very high valuation. On the other side, we have a company which is actually on the verge of a growth cycle in earnings, where the market has not reacted well to its fundraising. That is fine. I would agree with the fact that fund raising by Bharti of a reasonable size could actually help it strengthen its balance sheet; secondly, gain market share in key segments and also get ready for 5G. The market is at an all-time high. The Bharti Airtel stock went to a new high before correcting 5-6% from the top. So it is perfectly fine. I don’t think that it is a bad move. It depends on the way they are structuring whether they are getting in more money from Singtel or who is investing or whether it is going to be a QIP or rights issue. We still need to see these things but I would think that it is not a bad move to strengthen the balance sheet as the industry has gone through a very tough phase. The pricing discipline should come in but it has not yet come in. The stock could obviously remain somewhat weak in the near term till the fund raising gets through but longer term the stock should do well. What happens to banks? While ICICI Bank and SBI are showing leadership amongst the large banking names, HDFC Bank looks ready to play catch up then to ICICI Bank and SBI and form part of the leadership gang within banks?The HDFC Bank stock performance will depend more on how the new management executes growth strategy and whether they can do it by managing the NPAs in a manner which was there under Aditya Puri’s leadership. The first signs over the last couple of quarters do not seem to indicate that and to that extent, it is an open competition. The challenge for most of the banks now are twofold; one, the overall credit growth in the system is just 6% and everyone is grappling for growth. So, some banks which were used to growing at 15-20% like HDFC Bank, how do they grow like that when the system wide growth is just 5-6% without taking risk as that could lead to an NPA spike. So that is a challenge. The overall banking sector is challenged to that extent because there is no growth. There were initially some moves in a lot of these financial schemes because the NPA spike up due to the first wave of Covid was not as much as what people were expecting and the second wave actually has led to some NPA spike. So I would think that the overall financial space is at a stage where more consolidation is needed and it could still underperform as the markets correct. In the case of HDFC Bank, they need to execute to retain the premium and for that, we will have to wait for two to three quarters. The initial bump up has happened as some restrictions got removed by RBI but that move is more or less through now. It will depend on growth and the NPA picture.