We should be extra cautious on liquidity in December: Hemang Jani, Sharekhan

Although in terms of gross inflow at about Rs 16,200 odd crore, it does not look bad but the redemption is at a higher level, which is a bit of a concern. The liquidity-wise situation is not looking great and we also did not have any repo rate cut, says Hemang Jani, Senior Vice President, Sharekhan. Excerpts from an interview with ETNOW.


There is a similarity in how autos and especially rural facing auto companies like Mahindra & Mahindra and Hero MotoCorp are faring. Is there a trend which we should be cognisant of?
We have seen certain corrections in the backdrop of the upmove that we have seen in the previous month. For example, Hero Motor had spiked and now is going through a bit of a correction. Mahindra & Mahindra has been a stark underperformer. The way to look at this situation is that in case of passenger vehicles, there is a trend where certain categories of products are showing growth -- be it compact SUVs or certain newly introduced products. But the companies which are running certain product pipelines where the inventory levels are high is where probably the market is realising that Mahindra & Mahindra is lagging behind.

After Bajaj Auto changed strategy to penetrate into the lower capacity motorcycles by aggressive pricing, it gained market share at the cost of Hero Motor in the domestic market. Those are the reasons why we are seeing a bit of an underperformance coming from these two names.


There has been some focus on PSU banks. We started to see some positive momentum building up, then there was a lag, post the RBI policy. Yesterday there was some stability and certain names stood out in trade. What would be your opinion on some of the PSU names like SBI, PNB or BOB?
While State Bank is a better performer, the overall PSU bank space continues to remain quite muted. We have seen some kind of runup in State Bank of India over the last two-three months. Given that we are not seeing any incremental positive news flow in terms of growth coming back, we would continue to be a little cautious over there and the fact that the rate cut has also not happened, is not really boding well for them.

Anyway, if you look at the rest of the PSU banks, they are not even worth talking about. Asset quality wise, we see the government taking steps to merge but I do not think by merging the banks you are actually able to address the core issue of non-efficiency, etc.

At some point, if there is a correction in a State Bank of India, maybe it could present a good buying opportunity but overall we are not too enthused by the PSU banking space as such.

The logic for ICICI Bank is that the corporate bank NPA cycle has reversed. If that is the underlying thesis, why is Axis Bank not giving ICICI Bank some company?
We need to look at these performances over a slightly longer timeframe because Axis had started performing well even before ICICI Bank started doing well. Because of that recognition of the bad asset quality and the growth part, Axis Bank was ahead of the curve. But despite that, even this year, Axis Bank has done exceedingly well.

What people are realising is that the subsidiary valuations -- be it insurance, asset management company, broking -- put together, the market is willing to give a much higher valuation for those subsidiaries. The embedded value for ICICI Bank or even for that matter Axis Bank is undergoing a bit of a re-rating. I am not too worried about Axis Bank not participating as much. The overall outlook for both Axis and ICICI continues to be good despite the runup that we have seen.

Also your views on a) the liquidity situation and b) the surprises like the AMFI data wherein lumpy money sure has been pulling out of the market for the last three months. But it is heartening to see that the retail participant, the SIP culture that stays put.
That’s a very interesting point. We are going to see a bit of a liquidity squeeze because a), we have seen a decent amount of selling by the FIIs. b), A lot of block deals are really hitting the market and that is sucking the liquidity out from the system. Every second day, you have a OFS or a block deal or a QIP which is not great news for the market because it is sucking out the liquidity coupled with some of the IPOs.

Although in terms of gross inflow at about Rs 16,200 odd crore, it does not look bad but the redemption is at a higher level, which is a bit of a concern. The liquidity-wise situation is not looking great and we also did not have any repo rate cut. From that perspective, December should be a month where we should be extra cautious.