There is going to be no need for niche mobile wallet cos: Prashant Jain, HDFC MF

In a chat with ET Now, Prashant Jain, HDFC MF, says there is nothing which a bank cannot do using technology which a mobile wallet company can do. Edited excerpts

ET Now: For the longest time you have run a portfolio which is underweight on consumer, underweight on pharma some would argue that you are slightly ahead in that call because that hit your performance per se but now realisations has kicked in that there are genuine concerns for valuation concerns and growth concerns for pharma. So now that we could have a good monsoon, consumer stocks have seen a time wise correction. Is there a case to revisit them because consumers could make a comeback if the economy also heals?

Prashant Jain: One, whenever the cycle is changing it is better to be early than to be late because volumes on the way down are many times more than the volumes on the base. So yes, it does cause pain but I think over a cycle it adds lot of value if you are early in the next cycle. In consumer stocks, to my mind there is actually no slowdown in India and it is very clear that if you look at the list, penetrated categories like airline tickets, smart phone sales, air conditioner sales are doing very well. So how is it possible that these more expensive categories are doing well but railway tickets or your soaps and shampoos not doing well so it is linked more to penetration levels and I think consumer is doing quite okay. The less penetrated categories are going much faster than the highly penetrated ones. So I do not think I would build in any meaningful revival in volumes in the highly penetrated categories even if the GDP were to start growing 0.5 per cent or 1 per cent faster.

ET Now: If you are bullish on economy per capita income will also move up, spending patterns the aspiration to spend more, the aspiration to buy more, aspiration to buy better will also come back now that is a big opportunity, that is an opportunity which has been in front of us and will always remain in front of us because of a size and demographics advantage so what is the best way to capitalise on that?

Prashant Jain: Yes, as income levels grow I mean there will be a trading will take place but it also means that under penetrated categories will become more affordable so I think cars are growing faster than motorcycles that trend is here to stay. Bikes for last two decades have grown faster than bicycles. That trend is again here to stay. So I think consumer is a secular growth sector in India. Even the highly penetrated categories will grow. They will grow at a slower rate because of premiumisation or because of some volume growth but in my opinion it does not still add up to justify 50-60 PE multiple.

ET Now: So which are the other key under penetrated categories according to you?

Prashant Jain: Cars, airlines tickets, consumer durables, brown goods these are amongst the basic consumer staples. By its very definition, it is a necessity. Those are reasonably penetrated I would say.

ET Now: You are optimistic about PSU banks. If I talk to some other fund managers they like to endorse the private banks. Now that is a judgment view. So I would not get into this debate of wholesale versus retail banks, but let us stay with financials and talk about other categories. NBFCs are another big powerful category. Small banks are getting reformed, there is disruption within the banking sector. So three-four years from now when we would look back and we would be discussing the banking sector per se, where do you think the eventual winners will come from?

Prashant Jain: It is not correct to say that I am pro-PSU banks, I am pro-valuations. So I mean even in private banks there are corporate banks which are very cheap and they are some of our largest holdings. So I think we are basically looking at businesses that are sustainable and where we think there is meaningful upside over and corporate banks both in public and in private sector space to my mind are undervalued and these are the banks which have some of the best liability franchise in the country and cost of deposits is a sustainable advantage. It is there with you for many years to come. As far as the innovation that is taking place in the financial space, it will make the strong players even stronger because what technology is doing it is taking the physical element of service away.

I can service even 10 crore customers very efficiently through technology which earlier had some physical limitations, some physical constraints. So I think the stronger banks, the stronger players will actually emerge stronger. There is nothing which a bank cannot do using technology which a mobile wallet company can do and incidentally I think in two to three months time, new payment mechanism will be rolled out in India whereby you can transfer money from your mobile to any bank account in the country. The day you have that, there is no need for a lot of these niche companies because all you need is a bank account and a mobile and you can transfer money to anyone in the country.

ET Now: But what about NBFCs?

Prashant Jain: NBFCs I think are a sustainable business and there are good businesses and because of the focus what they bring on a particular space I think they are able to execute better and they have an advantage in terms of writing smaller ticket.