Go for bottom fishing in largecap pvt banks: IIFL

The auto ancillary pack should do well relative to what it has done over the past couple of weeks because we are clearly seeing a trend of improvement in demand, says the VP-Research, IIFL.What are you making of the market trend? Clearly Reliance stood out but otherwise the market somewhat consolidated. It ended in the green but lacking some direction.Reliance is the one which has been holding the market and IT also contributed a bit. Clearly, the disappointment has been more on the BFSI side. Going forward, we will see some of these larger players, the HDFC, the ICICI of the world doing pretty well as market share builds up for them. If we are going to see a market rally from these levels, it has to come from the BFSI space, especially these larger private sector banks and probably SBI.What explains the weakness in banks? Should the dips in private banks be actually bought?It does make sense to bottom fish these banks when you get them at lower levels. In the last couple of weeks, especially for the NBFC sector, the liquidity has really improved. They are able to gather funds from the market at a lower rate compared to what they were able to get around two months back.The overall perception was that just because of COVID prolonging, we will not see much economic activity. But a lot of the indicators, except for some like diesel sales, are showing steep recovery. So, the private banks should do pretty well going forward and some of the NBFCs also should do well. So where should you put the money? I would say something like an ICICI Bank with the CASA of around 42.5% looks pretty healthy and going forward the kind of capital raising these banks have done over a period of time, they have enough strength to weather anything happening on the moratorium side. However, something which will be disappointing will be anything on the Supreme Court side with regard to interest and that could be a negative for the sector. That is the reason why we are seeing this kind of volatility in this particular sector.What about other names from the broader markets? We had Jubilant Food Works, for example, looking good; some of the pharma names continue to standout. What else looks good to you?In the case of Jubilant, we have seen that people have now started buying from home and ordering from home and that is a clear positive in terms of economic recovery. In terms of pharmaceuticals, Cadila today talked about certain approvals coming in from USFDA which is a very big positive. One should look at buying the stock from these lower levels.In addition, largecap IT stocks like TCS and Infosys continue to do pretty well in the market and are one of our top picks. Infosys, especially, is a top pick. It will be having at least 500 bps higher growth relative to what we have seen in the case of TCS. From the midcap side, the auto ancillary pack over a period of time should do further well relative to what it has done over the past couple of weeks because we are clearly seeing a trend of improvement in demand whether it is for cars or two-wheelers as well as tractors. The kind of stocking which is expected for the festive season, clearly suggests that there could be some steam left in the sector.What will you be watching out for now in the week ahead?What will be critical in the next week is what happens to the international market. We have seen a sharp reaction happening in some of the stocks like Tesla and how there may be some issue with regards to peoples’ expectation about these stocks after the sharp move we had seen in them. So, the impact of that on the Indian market and overall global liquidity risk on trade would be something which is very important. The second will be how the banks over a period of time see their situation with regard to credit growth coming back because most of the NBFCs have now started to show positive growth in terms of retail numbers. Festive season preparation will be pretty critical for the economy. And on top of that something needs to be done by the government on this current mess which is there with regard to GST. If we see something with regard to divestment or some government announcement with regard to the raising of more capital, whether domestic or international, could be a game-changer for the Indian market as well as for the economy in the long term.

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