Prasanth Prabhakaran on why Infosys earnings may be better than TCS

NBFCs are a clear avoid except for the larger ones like HDFC Ltd or CanFin Homes which have the capability of raising capital. Apart from that, auto is supposed to be weak. Telecom and pharma are also to be avoided, says Prasanth Prabhakaran, Joint MD & CEO, Yes Securities. Excerpts from an interview with ETNOW.


Why is there is such a large divergence between SBI and ICICI Bank?
SBI has the government on its side. ICICI has no such backing. There is the quality of management which will end up making a difference when you are deciding on your portfolio. An overhang of policies and decisions will always lie on SBI and that is why the market rightly keeps on rewarding the better players on the private side than on the PSU side.

Apart from that, the commentary from ICICI Bank MD & CEO Sandeep Bakshi has been extremely positive, concentrated and on key matrices which are the liability numbers, increasing margins and concentrating on NPAs -- all three of which the market likes and would keep on rewarding it for a long time to go. Axis Bank and ICICI Bank are the key picks in our book. Quality, liability, franchises and slow and steady improvement in retail books and an outlook for corporate loans which has been fairly stable for quite some time.

We are seeing some amount of action building up in some of the cement names. Given that we have passed the seasonal trend in monsoon, is it a good time to get into some of those cement names?
Our entire picks have been largecaps. Our belief remains that if you have to play the markets, you should go for the largecaps because a few of the largecaps will take the Nifty up whereas the broader markets will continue to be under pressure.

In these largecaps, one of our picks is UltraTech Cement. The reasons are simple. They still have large capacity utilisations; prices have been more or less stable but a volume pickup is also slowly coming in. There will be a demand towards infra though the expenditure from the government has come down and towards the realty sector which is showing signs of either flattening out or slight increase on the affordable side.

So, UltraTech is a pick in the largecap space as far as the cement sector is concerned.

Are you telling your clients to buy the fear in pharma -- be it Aurobindo, Glenmark or Sun?
No. The call from the research desk at least for the last couple of years has been negative as far as pharma is concerned. While average growth has been at around 9%, in September, 12% growth was seen. It is a trend that we would like to watch. Whether the sales growth continues beyond the average growth rate has to be seen.

Right now, because of the US market as well as internal pressures, I do not think it is a good bet to build a position in pharma. Apart from that, the regulatory hangover that has been there for most of these pharma companies. Questions have been raised as far as their plants are concerned and that is a cause of worry. We just have not been able to get our act into place as far as managing US FDA regulations are concerned. If we are really serious about this business, then you will have to be regulatory compliant. If you are able to manage to do that well, you will be rewarded as far as shareholder returns will be there. Right now, pharma does not lie in that space at all.

When it comes to some of those weak pockets like auto, metals, there seems to be a consensus building that nothing much is to be expected there. Are you still scouting for any opportunities at lower levels in some of those names?
Nearly 60% of Nifty earnings are going to be weak for BFSIs as far as credit growth is concerned. The only advantage is that they get an advantage of the corporate tax structure in case it gets rolled out but from a perspective of growth of credit as well as NIMs that have been maintained, they have had massive amount of pressure. That is why the liability franchise banks are the ones that you have to look at.

NBFCs are a clear avoid except for the larger ones like HDFC Ltd or CanFin Homes which have the capability of raising capital. Apart from that, auto is supposed to be weak. The good thing is that though wholesale offtake has been low, retail sales because of discounting that has happened in the festival season, has seen an offtake that has started from the dealer level.

Once that inventory comes in, then the stabilisation of wholesale flow to these dealers will also happen and that will bring some stability in the downward spiral that the auto segment has gone through. Both telecom, pharma continue to be weak and it will continue that same trend because in the telecom space, clearly one player is trying to end up getting the maximum market share and all other players are wilting under the pressure that has been applied. Only a large player will be left standing right now which is Bharti.

The others have practically given commentary which has not been very encouraging. I have already spoken about pharma, your US-led companies are going to face a tremendous amount of pressure. The silver lining in the entire thing is that the September figures for pharma have been encouraging with top line growth. We would like to continue watching this space before taking a call.

What is your expectation on the entire Infy versus TCS parameter, given that TCS is going to be delivering its numbers tomorrow?
Actually the call has been to end up reducing positions on TCS and build it up in Infosys, purely on a valuation basis to make sure that they end up delivering on the two digit numbers. It might be slightly difficult for TCS but maybe there is an arbitrage that is available purely by valuation. But TCS runs the company far more efficiently than what Infosys has managed to do over the last four or five years. They have to get their act into place but still their earnings will be slightly better off than TCS in the current quarter.