Be a little wary of banking stocks for next six months: Deepak Shenoy

It is a fantastic recovery that we have seen in the market. Do you think that it is pretty much clear now that leadership is going to stay with banks till the year-end?
It actually does not seem like that to be honest. Going by the numbers from the banking front, it seems some corporate banks, some of the larger banks will probably do very well. We have seen the retail banks struggling; some of the smaller banks have also struggled. Interest rates have gone up and the pressure over NPAs should only be increasing rather than decreasing.

It is more likely that the manufacturing, defence and elements like that will do better in the coming weeks and months rather than the financials where there is a larger impact both of local interest rates going up, for currency changes and also international interest rates being spiked because of inflation or whatever else that causes foreign central banks to increase rates. We should be a little wary of the banking system for the next six months but good banks will last it out and last it well.

On the new energy giga complex, till the last AGM we knew that multiple factories are coming in but this time there was an incremental mention of foray into all the electronics which are required for new energy. For implementing it at the customer end, they will require hardware which will not be very traditional in nature. They want to set up an entire complex to manufacture the hardware and that bit came in as a big incremental. What did you make of it?
I think it may not necessarily be just for this battery management systems or the electronics that go around the energy dissemination piece but also extend into pure creation from silicon. I have not seen the full details yet but it seems to be fairly deep. If you look into a giga factory for manufacturing from silicon, which could actually be extended to non-energy based manufacture – boards, chips etc. It might be a combination, it might end up being a recipient of something where even the government is trying to get more chip manufacturing in India. Perhaps, there is an incentive that comes in alongside that and is looking to perhaps take advantage of it in a more broad way.

I do not have the details. I have to go through Mukesh Ambani’s speech later but given it is a giga factory, it cannot be for something really small. It is most likely going to be for a much broader application base. Again, I am on the outside, I do not know much.

You will have WhatsApp being integrated with Jio Mart. Also another announcement has come vis-a-vis the foray in power electronics, glass and POE films. With all of this happening, what will it mean for ?
Regarding electronics, not much is known yet. But Jio Mart is perhaps targeting people going to Amazon and Flipkart rather than IndiaMart or anything else. IndiaMart is mostly B2B, it is not a B2C player and they are not going to get affected so much. They have an ownership in JustDial which is also a semi B2B listing player and if they did something with WhatsApp and JustDial that would then come into IndiaMart territory.

Right now, they do not and JustDial does not have the depth and breadth of reach of a lot of the things that IndiaMart does. Having said that, they do have businesses in IndiaMart’s territory like part of the logistics areas. They have some of the other listing services for B2B players internally as well. I do not think it is direct competition and this announcement is largely focussed on people like you and me buying off of the Jio Mart on our WhatsApp.

I do not know how good that will be, I do not know how that experience will be, I should try it once and then figure out if this is better than the Amazons or Flipkarts or not. That is where the challenge is. The other spaces we do not know yet. I do not know specific details of who it will compete with, especially electronics. The giga factory was announced there but most of the competitors will be in the private market space, unlisted, rather than in the public market space.

What is your take when it comes to the defence pack and also with the runup that we have seen in stocks. Has that opportunity been missed?
In general, these are mostly very small stocks other than

, which is reasonably big. Some are PSUs and therefore there will be a challenge in terms of specific things around . One of the other guys there actually has this concept that the government is maybe looking to divest more stake that will increase supply in the market. Much of defence is about government procurement. These are typically three- to five-year orders.

So if one has analysed how things like

and some of the other companies that stores from or have customers in the defence area or DRDO or space, one can see that a lot of these order mechanisms start to become reality after a certain time lag. Sometimes it takes two or three years. I do not know if in any of these cases, investors tend to lose patience because management keeps telling them that this is a five-year thing and they will get the order only in 2024 and then in 2027, they will have to start delivering. That typically becomes a much longer wait period, receivables increase and so on.

So, we should not rush too much into trying to buy these stocks right now, given that government finances are not so good that they will be able to increase the defence budget substantially next year either. We have investments in this space. We are happy that some of these stocks have gone up but we should be a little circumspect that this is not the next big story starting right today and giving PSU companies 50-60 times earnings might not be the right thing for a healthy portfolio.


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