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Banks to remain a compounding story in this market: Vikas Khemani


"Growth is coming in a reasonably good proportion. Investment cycle has just picked up. So, you have both triggers of investment cycle as well as the retail credit growing, which is a very robust," says Vikas Khemani, Carnelian Capital



What is the general view on the market at the current juncture? We had that almost touch and go moment with 20K. We have retreated. The earnings now pretty much seem to be out of the way. Macros are looking fairly decent. What does that spell out for our own markets?


Absolutely. I think, if you see Indian economy is going to go from 3 to 5 trillion dollars, banking is one of the largest sector which will lead it. A good part is that in banking our balance sheets are one of the best ever.


Growth is coming in a reasonably good proportion. Investment cycle has just picked up. So, you have both triggers of investment cycle as well as the retail credit growing, which is a very robust.


So, you have diversified growth coming on the asset side and your balance sheets are very well in place. And given what we have the credit infrastructure in place in the form of IBC and CIBIL score, I feel that there is a structural repair which has happened to the sector.


I mean, we had written a note on this about a year ago. So, with the structural repair, I think the worry of NPA cycle, in that proportion what we saw last cycle would not be there.


So, to that extent, I feel that this sector can deliver anywhere between 15% to 20% return compounding over next five, six years as long as the economic growth continues.


Within that, there will be ups and downs in cycles I am not saying that. But structurally speaking this sector is very well in good shape and can deliver good compounding ahead.


What is the outlook then on the entire space and how you are looking at companies such as an IndoStar Capital and a Salzer Electronics as well, if you could just give us a little bit more clarity as to why the space is looking appealing?


Not really. I would not probably want to comment on the stock holding per se. Generally, we look to invest into companies where we can see good earnings growth as well as the re-rating.


And some of the names you mentioned where we call in our internal parlance magic basket stories where we think that they can get re-rated based on our own analysis.


All I can comment is on that. But generally speaking, I mean, each stock has a lot of investment thesis, which I would probably stay away from commenting because of the compliance issues.


Given the fact that we've seen autos really have a pretty stellar year gone by and expectations as well were riding very high when it came to the quarterly numbers. Do you think that it has the strength to continue its up move, given that a lot of the supply chain semiconductor issues as well seem to be behind?


Absolutely. I think auto sector has been growing. We have been overweight on auto sector for some time. If you see between 2016 to almost 2022, there was hardly any growth in the auto sector. Pent up demand has been there. Infrastructure has been building. Economy has been growing. So obviously, it is bound to happen that you will see accelerated growth once all the issues are sorted out.


Like you mentioned earlier, IL&FS crisis took away the credit. Then pandemic happened. Then semiconductor chip kind of impacted the supply side. So, all those things are behind. And we think auto sector can do well. Demand is robust and associated auto ancillaries also will do well. So, the whole pack looks pretty decent.



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