“After hitting the psychological levels of 26,000, markets are consolidating at current levels and with this last month we have seen a 4.5% kind of a gain. So, some bit of a consolidation is not a really bad thing at current levels,” Pandey said.
He added that the broader economic numbers are showing encouraging trends. “When you look at the overall numbers, numbers are coming out quite constructive. In fact, when you look at auto numbers across the board, the numbers are pretty good,” he noted.
Auto sales across key players remain strong. “M&M continues to do very well, best ever SUV sales. Maruti’s commentary is quite positive and Tata Motors again also delivering a peak set of numbers at 61,000 odd units,” Pandey observed. Even in segments where limited growth was expected, performance surprised positively. “Two-wheelers were not expected to do much overall, but Eicher Motor came out with pretty good set of numbers,” he said, adding that tractor and three-wheeler segments too are showing resilience.
Pandey believes that “post GST the demand momentum is still sustaining,” and this points toward “further better days ahead in the market for a lot of sectors including autos.”
Sector Rotation Adds Durability
On the banking front, Pandey described the current phase as a “sector rotation,” calling it a healthy sign for the market. “What we are clearly seeing in the market is sector rotation which is a good thing to happen. Earlier the value was driven by private banks, autos, and IT and those have paused for a breather, whereas when you look at metals, PSU banks or oil and gas, they continue to do well,” he said.
According to Pandey, this rotation adds more stability to the market uptrend. “This kind of a sector rotation again is a lot more constructive because it lends more durability to the overall upturn in the market,” he explained.
He remains positive on PSU banks for now. “At this point in time yes, PSU banks are looking a lot more better, numbers have been relatively good. PSUs experience typically lesser volatility on the margin front and if the government takes furthermore measures, further room for upside is definitely there in PSU banks,” Pandey stated.
However, he clarified that private banks are only taking a temporary pause. “Not to say that private banks will not do well, but yes, at the moment private banks and autos are taking a breather for good,” he said.
Private Banks Poised for Broad-Based Growth
When asked about HDFC Bank and ICICI Bank, Pandey noted that margins have performed better than expected. “For HDFC Bank, the overall sense was that the second quarter, the margin decline was expected to be about 12 to 15 odd bps. The margin decline was about eight odd bps,” he said.
He added that a broader lending recovery is underway. “Going forward for HDFC Bank specifically or even for other private sector banks, now it is expected that corporate lending is also expected to pick up. On top of it, the retail, agri, and MSME will continue to do well,” Pandey said.
“What we are going to see is more of a broad-based growth coming up in private sector banks which is what will drive the next leg of rally in private banks,” he added, expressing optimism on the sector.
BFSI and NBFCs to Continue Leading
On non-banking financial companies (NBFCs), Pandey said the outlook remains constructive. Commenting on Shriram Finance, he noted that fears of stress were overstated. “The overall sense was that CV was expected to hit a rough patch from a NPA cycle perspective, but largely numbers are not really pointing towards that,” he explained.
He added, “Overall CV volumes also are shaping up well. We continue to like even this stock as well or in general most of the NBFCs because our sense is that the cost is expected to come down. NBFCs are poised well, so BFSI in general is expected to do the heavy lifting the way it has done in the last month itself.”
Refining Margins Stay Robust
Turning to the refining space, Pandey said the sector has delivered above expectations. “Refining margins have been better than what was anticipated last quarter and refining margins or GRM have further gone up,” he said.
While acknowledging that there could be some moderation depending on crude prices, Pandey maintained a positive view. “Our sense is that even Q3 is also expected to be pretty robust for some of these downstream companies,” he noted.
Valuations in the sector, he said, remain appealing. “Valuation-wise most of these companies are relatively attractive and our sense is that even on the LPG under-recovery side overall with the kind of pricing on the declining trend for propane and butane, things are quite good for the entire refining as a segment,” Pandey concluded.