2 bank stocks Hemant Shah is bullish on for near term

"The market is also back to basics, back to normal things, and the new things to look forward is the budget and the 100 days of the new government policy. Yes, we are holding on. We seem to be definitely still bullish," says Hemant Shah, Seven Islands, PMS.


How are you guys positioning and approaching investing at Seven Islands PMS? What are your big overweights in the positions?
In fact, we are also adjusting with the event passing by and our portfolio is getting definitely adjusted with the new events and election event getting over and coming back to basics. So, what we focus is core investments. It is a multi-cap fund we are running, Seven Islands Multicap Fund and we are having a mix of largecap as well as midcap companies.

Specifically in largecap sectors, we are focused on the telecom space per se and in the midcaps, we believe in visibility, validation and valuation. So, where valuation comfort is there, we have invested; where there is visibility, we have invested. And if you ask me, we have also invested in few PSUs, though the valuations are not at all cheap nowadays, but still we have been holding it since we have entered at a good price and a good time.

So, the current strategy is to hold on to the investment. I think, again, the market is also back to basics, back to normal things, and the new things to look forward is the budget and the 100 days of the new government policy. Yes, we are holding on. We seem to be definitely still bullish, yes.


What is your view on some of these so-called new-age tech companies, the Zomato, Paytm, Honasa of the world?
I think Zomato, we have reduced our position. In fact, we have exited the position around a month or two months back on just basis of the valuation and the competition coming in.

But Paytm, we are not frankly tracking it. But what we are tracking is Zaggle, it seems new-age company and this is the company to look for. I mean, definitely this is a company which can post at least 25% to 30% growth CAGR for the next two-three years, so that we are bullish on. So, we are tracking it and we seem to be very bullish on this Zaggle per se in the new-age space.


Are there any other such interesting themes that you are working around and any of the conviction ideas that you may have come across?
The theme is basically what we are focusing is that select pharma companies which are working against the Chinese dumping, making their own presence in the world market.

Select pharma companies who are niche in terms of CDMO or who has some niche products which are not competing with China and Chinese products and Chinese dumping and which are exclusive in nature.

Say, for example, let me say Blue Jet Healthcare Limited, I think the company just got listed in last November. It is a niche business and they are one of the fourth player in the world to supply one ingredient to all the multinational European and American company.

This seems a very interesting space to be in for long term, still they are working on two-three more new molecules and more products, I think there is a tremendous growth potential for this company at least for the next two-three years.

In the healthcare space, midcap healthcare or even largecap, anything you like in healthcare?
No, healthcare space, basically we are focusing on pharma. I do not track the healthcare space, hospitals, etc.

What about PSUs? Do you have any PSUs in your portfolio?
Yes, so we have been holding PSUs. In fact, we have been holding railway PSUs as well as Mazagon Dock. We have been holding in our PMS also. We are holding it on right now. I think the potential is definitely very good. But the valuations also are not at all lucrative now. But it is advisable to hold on to the position rather than recommending to add on.

How are you playing the mid-tier financials or lenders be it from small finance bank or some of the mid-tier NBFCs, anything you have in your portfolio?
So no, we are basically positive on the private sector banks nowadays. So, NBFCs we are not holding much. We are not holding in fact. But private banks, we are bullish on.

Can you share some of the ideas which you have among lenders in your portfolio, among large banks?
I think ICICI Bank is best placed, I mean, there is nothing to talk about the quality of earnings, size, growth, everything seems to be aligned with the market growth itself and they are going to outperform it looks like.
And even in the midcaps private banks I think we can look at the bank called DCB Bank. I mean, the book value is just Rs 162, available at just 135 or so.

I mean, it is available at 0.7, 0.75 times book today, trailing is almost 0.6, 0.7, 0.65 and the financial metrics are also very safe. It is a very good investment for at least 25% to 35% return over a period of one year. So, these are the two banks we really like.

What is the best way to play the real estate theme you believe because, of course, affordable housing has been picking up, there is a lot of push to that, but a lot of these stocks had run up tremendously. Is there still a safe bet within real estate or other way to play it?
I would say the risk reward ratio from the investor's perspective is not in our favour in this sector particularly. I mean, all the stocks have run up. Of course, run up with the right reasons, run up with the right directions, run up with the growth but the valuations are not compelling or not attractive according to me.

So, frankly, we have avoided this sector as of now. The risk reward is not in our favour, so we are uncomfortable to invest in these companies on behalf of our clients since the risk reward which we feel is not in our favour. So, though the companies will do well, so definitely I am sure they will do well, but we have not invested in real estate sector per se.