Let’s talk about the inflows that HDFC Bank is likely to receive after joining MSCI. Could this revive the price action? Since the Q1 update, we haven’t seen much movement in the stock. It has given back all its previous gains and has just been sitting quietly since then.
Anand Tandon: Yes, overall HDFC Bank’s performance in the stock market was not exceptional. And most of the gain was due to better margins, but that was to be expected because when you give away part of your corporate portfolio, margins naturally go up and that was the reason for the margin increase, which in turn led to slower loan growth.
In this context, I don’t think there will be any significant changes. Yes, there is no doubt that fresh money can flow into the stock and hence we could see some technical reasons for a rise. But it will take a while for the performance to translate.
The biggest advantage for private banks is that loan growth is outpacing deposit growth. And since most private banks are able to build a valuable franchise on the liability side compared to their public sector counterparts, it helps to have a good network. And HDFC is probably one of the best in this regard.
That being said, challenges remain and we have a few more quarters of weaker NIM ahead. The biggest advantage for HDFC is the fact that it is not expensive compared to its historical value and the rest of the market. From that perspective, private banks in general, including HDFC, are relatively cheap.
With rural areas expected to recover, Hero is a good bet on mass consumption. Could Hero surprise on the upside in this and the coming quarters?
Anand Tandon: That is possible but the fact is that Hero has been a little weaker in introducing new product lines, especially beyond the smallest vehicles which are their bread and butter at the moment. And given their slightly weaker R&D strength, they still cannot penetrate much. They have lost market share overall. Their attempt to enter the electric vehicle market is through another company, not their own. So in all these things, they are probably the weakest among all other two-wheeler manufacturers. However, as you said, it is a fact that the revival of the rural market could help them. Bajaj has been trying very hard to grow the market for 125 CC and above and if rural demand slowly moves in that direction, that could become another longer term problem for Hero. In the short term, prices across the entire two-wheeler space are exceptionally high. Considering where we are, we’ve just reached revenues but not 2019 revenues, the market caps of all these companies are multiples of what they were, and we have Ola Electric that’s also going to take some of the market. So the market shares of all the previously listed companies have gone down overall; however, the market cap has gone up quite dramatically for all of them. So while there may be some marginal adoption, I’m not sure this is necessarily going to become a major wealth creator in the near future.
How should investors deal with the Hindenburg affair and its recent allegations against the Sebi chief? The allegations were neither substantiated by evidence nor facts.
Anand Tandon: I think this recent report is a backfire. You are trying to insinuate that it is wrong for someone to invest in a foreign fund. What is wrong when both the Sebi chairperson and her husband are very high earning professionals and have been working in the private sector for a very long time? It is not inconceivable that they have moved some of the money abroad and diversified a portfolio. Saying that the fund is invested in an Adani company is like saying that if you buy Nifty ETF, you are also an investor in Adani and hence have committed some sort of crime.
Investors should not waste their time on this. One has to form an independent opinion on whether Adani Group has any governance issues or not. One can have a different opinion than what Sebi has published, but that is irrelevant in the context of the recent Hindenburg report. I think they are exaggerating a bit here.
There is a lot happening in the two-wheeler business, especially now with Ola’s debut and as a listed company. You wanted to understand what the preferences are in the two-wheeler business?
Anand Tandon: IIt’s still a sector that’s struggling to grow its sales beyond the previous peak, and at the same time, there’s enough technological disruption going on there. Whatever consumer growth we’ve seen, most of it is currently in higher-end vehicles. If you look at what’s happening in cars, a lot of the growth is coming from SUVs and not so much from the lower-priced vehicles or sedans.
Keeping that context in mind, if there is some increase in rural demand, you would expect to see some increase in volumes in two-wheelers as well. But by and large, that could happen in motorcycles that are perhaps a little more powerful than the base models, because I think preferences by and large seem to be shifting in that direction.
While I don’t expect EVs to be very popular in rural areas, there could be surprises and you have to remember that hybrid and electric vehicles are going to shake up the market quite a bit. In that context, it’s difficult to pick winners at the early stage that we are at right now, so it’s better to either take a basket approach or maybe exclude this sector given the valuations that it has, as it’s not entirely clear who will survive and be the market leader going forward.
