Why does Bajaj Finance hold if HDFC Bank goes through a downgrade? Kotak has already gone through a period of underperformance. FIIs also own Bajaj Finance. Why don’t they sell it? What is so unique about Bajaj Finance?
So it comes down to how different stocks are weighted and what kind of rebalancing or fine-tuning they make to their holdings. If for any reason they choose to reduce their exposure to HDFC Bank, the impact would definitely be much greater there. Looking at pure fundamentals, HDFC Bank has done a much better job relative to Bajaj Finance in terms of quarterly performance, loan growth, asset quality, and diversified franchise presence.
Bajaj Finance undoubtedly has an exceptionally good pedigree, but both the reviews and the fact that in the meantime as Covid continued their growth and performance weren’t up to par and so it was more about the digital foray and the nature of the platform they use created. If you ask me if I would buy Bajaj Finance or HDFC Bank at the current price the straight answer is HDFC Bank and I don’t read too much about why Bajaj Finance doesn’t fall because it’s all about institutional ownership and what kind of exposure goes below they want to do.
We should look for investment opportunities in areas where there is a deeper cut.
Where do you stand in terms of consumption as reports suggest that commodity inflation has impacted GPMs for 10 straight quarters and volume growth could potentially be quite subdued? Does the picture look a little bleak?
It’s not looking good for the industry. To some extent it has undergone slight underperformance and price correction and is not incrementally negative, but we need to see within the sector in the current scenario which companies have better pricing power or will be less affected by what’s really in terms of pressure on input prices, the slowdown in the rural economy, etc. is going on.
From this perspective, names like Dabur, Marico are better placed. We like HUL, but here the size and the fact that it may take a while for volume growth to return makes it a bit difficult for HUL to perform big. But we believe this sector is going through many downgrades and partly due to the kind of premium valuations it has always traded at, this will make things even more difficult in the current scenario.
Does it make sense to buy Varun drinks?
Absolutely. This has been one of our favorite mid-cap games and the reason we continue to like it is that out-of-home consumption will increase greatly. These categories are still under-penetrated, and that definitely bodes well for significant growth.
That being said, the territories they’ve recently acquired to the west and east have started off pretty well. In the last six months, in addition to beverage products, small snacks have also entered the category, which has again found a decent level of acceptance and diversifies the portfolio in a meaningful way.
So a very tough summer season where people go out very aggressively bodes well for them. So a combination of growth spurt, product diversification and consistent performance makes it very compelling and we have a price target of around Rs 1,175 which is a good 24-25% above the current price.