Stocks in a state of flux are interesting, says Valcreate Investment Managers

Rajesh Pherwani, founder and portfolio manager of Valcreate Investment Managers in an interview with CNBC-TV18 said that stocks caught in a state of flux offer good value for investors.

“There has been a polarisation of valuations for high quality companies. If you look at HDFC Bank or Kotak Mahindra Bank or Bajaj Finance, they are trading at a premium to remaining stocks.

"On the other side of the spectrum, you have companies which are in trouble like DHFL or some companies or banks where there are issues like YES Bank. Their valuations have been beaten down, stocks have been beaten down. However, there is a space which is operating in between, which is in the state of flux. That space is very interesting,” Pherwani said.

He continued: “PNB Housing or Repco Home Finance-like companies are still making return on equity (RoEs) of 15-18 percent. Assets under management (AUM) is still growing at 15 percent. Disbursements are getting hit, no doubt but asset quality is still under control. If you pick them today — not these stocks per se — you are getting them at valuations which are very much in your favour, the risk return is very much in your favour today .

“My thesis is based on corporate governance and the promoters that you are betting on and there are companies where there are no promoters, these are publicly owned companies or there are very good quality promoters where you can take a bet. I don’t think there is much to lose in some of these names from hereon. So this state of flux is a very good segment.”

The non-bank finance companies (NBFCs) in the country have been struggling with liquidity concerns for some time. Pherwani said due to the crisis in the sector some players are available at good valuation.

“There are NBFCs where because of the environment, somehow high growth rate NBFCs growth rate has got impacted and valuations have also got a bit impacted but there are NBFCs where you are getting them at reasonably cheap valuations today compared to the historical valuation because of the non-performing assets (NPAs) issue.”