'Not too many options, people have to seriously allocate in Reliance'

We continue to believe that rather than trying to buy on a valuation parameter, it is better to get into companies which are currently showing growth visibility and momentum, says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL.

Reliance is more of a platform company now but when it comes to telecom, it is safest to stay put in Reliance. Now cheque after cheque is coming into Reliance Retail as well. Does that make the holding company stronger?
Absolutely. For a majority of the investors, their weight in terms of Reliance in portfolio is absolutely critical given the huge outperformance coming from the largest market cap company. Whether you believe in the Reliance Retail story or not, the fact is given the kind of outperformance that Reliance is demonstrating for the last six months and the kind of noises that we are hearing and the positive news flow in terms of new investors coming in, people are not left with too many options but to have a serious allocation towards Reliance.

In terms of data points, the Jio part is very well taken care of. We have to see how the retail part evolves in terms of actual structure and numbers but we continue to have a positive view on Reliance, even the dominating position that it has in terms of market cap.

Why is ITC getting punished? Is it only because they are in the tobacco business?
People are a little surprised with the fact that despite a great legacy and a very interesting and attractive valuation, why is ITC underperforming. The clear reason for that is 80% of their EBITDA is coming from cigarettes, where things are not looking that great -- be it the volume growth, be it the overall long-term story. The way the government is going to go about increasing the GST rates for cigarettes could be another kind of a negative development for them.

The other aspect is that the non-cigarette business has seen a good amount of top line growth and the size that ITC has been able to achieve. But the concern there is that the EBITDA and the margins have been much lower than many of the comparable companies in the FMCG space. So until you see some uptick in that part of the business and if cigarette business is not going to give you that kind of a growth visibility then what can one bank on? It has interesting businesses. We continue to believe that rather than trying to buy on a valuation parameter, it is better to get into companies which are currently showing growth visibility and momentum. Globally, this is the narrative and trend and we would continue to focus on those companies. ITC is not fitting into that theme at this point of time.

Like Bharti, most analysts are positive on ICICI Bank as well. But there continues to be that overhang of moratorium and the impending NPAs. ICICI Bank has been quite an underperformer?
The entire pack has been an underperformer in the last three months because there is a sense that you might get a bit of an extended period of slower growth and uncertainty on the asset quality front. But as we move into the unlock season where sectors after sectors are showing positive data points and management commentaries turning positive, those concerns will recede.

Some of these corporate lenders should attract good buying interest because most of these negative things are pretty much known so. Companies like ICICI Bank, HDFC Bank and some of the larger NBFCs are the ones where people would want to really participate as we see more positive news flow coming out in terms of numbers.