The Reserve Bank of India's new framework on stressed assets is pragmatic and positive from a resolution perspective, says Gurmeet Chadha, Co-founder and CEO of Complete Circle Consultants.
Talking about stressed companies, Chadha said Dewan Housing Finance Corporation (DHFL) and Yes Bank should be avoided as they are value traps. “Tactically one should look at Zee, there is underlying value in the asset. One must avoid DHFL or Yes Bank. These value traps must be avoided. As I said the price performance sometimes is immediate, the value deterioration could be gradual over a period of time. So Zee could look better,” he observed.
Talking about the financials after the RBI’s new framework on stressed assets, Chadha said there was a lot of overhang of non-banking financial companies crisis. "What I liked about the RBI circular is that it is mandatory to sign inter-creditor agreements (ICAs) by all lenders. What it does is that it makes the buyer more certain against any further litigation. So it is a long-term positive," he said.
“There could be some concern over the marginal hike in provisioning, may not be too much for large banks such as State Bank of India where the provision coverage is more than 70 percent already for cooperate loans, but could be more in tier-II, some of the tier-II names where the non-performing assets are still high,” he further added.
According to Chadha, with the government's thrust on rural economy, two-wheeler companies will be benefited. “The investors need to separate price performance from business performance. While the price goes down significantly when you have negative news, the value does not change that quickly and there lies the opportunity. We like two-wheeler names. There will be thrust on the rural economy. The first names to pick up would be two-wheeler companies and maybe some farm equipment makers.”
While giving some of his picks, he said, “Two-three ideas; we like ICICI Bank, Axis Bank and SBI in that order. Another theme which I like is Havells. The home improvement theme is here to stay so if you remove the Lloyd performance in the last quarter, the divisions such as wire, switch gears and lighting all did well. They have great access to both the retail consumers as well as the professional consumer category.”
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First Published: IST