If there is proper restructuring and if banks are given a greater time window to come up with a new term for the interest payment, largely the system would be fine, says the CIO & MD of TCG AMC.
Banks have really borne the brunt of the market fall. Do you think maybe we need to take some profits off the table even in the top five names given that you do not know which way the global markets are going to head and they are looking a little bit skittish?
Both domestic and global markets kind of came off this week. You also had the Sebi margins deadline. So that was another factor. Then we had the Supreme Court judgment where they have given this new deadline of 10 September. Now while the amount in itself probably would range to Rs 40-50 billion, that is the amount that can go bad based on some of it slipping into NPLs. That is the amount of moratorium that slips into NPL. The amount itself at the aggregate for the overall system is not a huge amount. So between the private banks and the PSU banks, you will have your usual suspects based on whether one has a better quality of book for the credit card lending and consumer durables lending and of a business or be in the other businesses. But I think it does set a precedent. Farm loan waivers are bad the same way a waive off of interest is a bad precedent.
Now outside of that, if there is proper restructuring and if they are given a greater time window to come up with a new term for the interest on interest that they need to pay, largely the system would be fine. I think the bigger issue is where the new loan growth will come from because the fiscal space available to both states as well as the centre seems to be limited. So where does the developments spend come and where does the kicker for credit growth come? I think all these matters have kind of let the banks down this week. But the valuations pretty much reflect all kinds of problems. So banks are not going to be the reason to take this market down further; it is probably just a week of confluence of all these factors.
How are you viewing the stall that we are seeing when it comes to pharma?
It is kind of a pause more than anything else simply because in the run up to a vaccine, whenever it is going to be found in a few months from now, mind you there are 7 billion people whose population out there need to be vaccinated. To vaccinate this whole country, it will take two years or more. Now for the vaccine, the manufacturers, Pfizer or AstraZeneca are in the lead out there. There are a number of ancillary supplies, whether it is the APIs or injectables; ancillary industries, the pharma industry and also the mainstream Indian pharma are all suppliers in various ways. So if you look at that picture down the road, there is still a lot of upside in various ways that will impact various Indian pharmaceutical companies. Also, the product approval in itself for Indian pharmaceutical companies is fairly robust. So a combination of these two, we are still positive on the pharma sector.
Towards the end of the week, we saw a lot of tumult when it came to global markets on the back of the tech sell off. Clearly, we will be walking into Monday with that in the backdrop as well. What else will you be eyeing as we move up forward?
One of the recent underperformers has been Zee Entertainment. Zee Entertainment used to trade at about 40-50 times a couple of years ago and now trades at probably 12 times. Now there has been a management change and the balance sheet has been cleaned up. The intercompany borrowings, etc are largely under control. The advertising revenue was kind of weak but the more important thing is, in the lockdown, all of us have watched Netflix and Amazon Prime but forgotten Zee5. Just like how Bharti is the only card play for India traded company, India has very few options in the OTT space and Zee Entertainment has a huge market out there. It has a very rich content base and it understands the industry extremely well. It has excellent penetration across various regions. I think from this perspective, it is a company which is worth looking out both for the medium and the long term because this is a story that is likely to play out.