- One should expect some revival in the midcap and smallcap stocks.
- In midcaps, we like select utility and infra companies.
- Real estate sector has done pretty well despite the gloom and doom.
We have been positive on both the largecaps and select midcap stocks — wherever the performances have been good and the ones which have corrected recently, says Hemang Jani, Senior Vice President, Sharekhan. Excerpts from an interview with ETNOW.
What are you tracking, what are you positive on?
We have been positive on both the largecaps and select midcap stocks — wherever the performances have been good and the ones which have corrected recently. IndusInd Bank stands out within the private sector bank space. The stock has corrected more than 10% and some of these banks where the overall CASA franchise is strong and where there is no major hassles on the NPA front should do well.
Apart from that, some of the MNC pharma stocks have revived though some of these stocks are not under our coverage. But after three to four years, we are seeing that on the domestic front, some of these companies have started reporting good growth and have been proactively talking to investors about their product rollout plans. So, the MNC pharma space also is looking pretty interesting.
Have you identified any midcap space where you think things are looking attractive?
Midcap has been a difficult patch for a while and we have been liking some of the utility companies — the gas companies like Mahanagar Gas, Petronet LNG. Despite the environment, the core story of volume growth with some stable margin is here to stay. Also, some of the infrastructure companies like KEI Industries and KNR Construction are better placed though the appetite is not that strong. But the companies which have really withstood the last 12 to 18 months and have not defaulted and have in fact shown a relatively better performance are the ones that people would definitely want to go in for more. We have seen that the inflows into some of the midcap and smallcap schemes also has improved last month. One should expect some revival in the midcap and smallcap stocks.
Yesterday, we saw a couple of real estate names which despite the slowdown, are bucking the trend on the back of expectations of a boost in housing as well as lower rates. Do you agree with that?
The real estate sector has done pretty well despite the gloom and doom that in the domestic economy. When we have lower interest rates and the fact that the government is expected to support this particular sector in terms of certain packages, you might see some kind of a revival over there. Particularly, companies which have a relatively better balance sheet would do well.
We do not have any specific stock under real estate but the ones with a better balance sheet like a Godrej Property or a Oberoi Realty are some of the companies that should do well in the current environment.
Would you read too much into this week’s price action?
There is a lot of stability in our markets after a long time and it is happening at a time when there is a lot of strength in the global markets and the flows picture is getting a little better though it is very difficult to gauge how the trend would be over the next few months versus the unabated selling that we have seen for the past many months the first indication of some kind of a reversal definitely would bring in a lot of optimism.
At the same time, the domestic news flow has not been that great in terms of the growth or the data points but the market moves a little ahead of the actual news flow. There is definitely a sense that over the next two to three months versus what we have seen over the last couple of months in terms of data points, you should see some improvement.
We should definitely look at these developments in a positive way. The market has corrected quite sharply and we have underperformed most of our peers. There is a case for a revival in our markets.
Do you think YES Bank is a contra but an interesting stock to buy because the stock has exhibited the ability to raise capital and if they are able to raise capital, the question of survival is over?
The way to look at the YES Bank saga is; a) consider the credibility of the loan book. People have their own doubts and the last fund raising that they did was at about Rs 83 odd. Typically, in most of the banks, when there is a certain amount of fund raising at a certain price point, there is a lot of stability or respect for that level and you see stocks bounce up. But in the case of YES Bank, even after the last fundraising around Rs 83, we have seen a sharp correction which means that even the new investors who are investing into the bank do not have much comfort with the growth plans or how exactly the loan book quality is going to pan out.
So in an environment where the entire market is moving up, you might see a little bit of spike up in YES Bank, but the larger question is whether there is a case for a sustainable revival after a drop of almost 60-70% in market cap. I do not think we have a very clear answer there and Paytm does not seem to have any great experience to run a bank. Also, they have their own issues to deal with. I do not think we should really get too excited by the news of Rana Kapoor trying to sell off some stake to one of the fintech companies.
Maruti was commanding a PE multiple of 40 when margins were at the peak, market share was at the peak and there was no fear of disruption. Now, the market share is getting threatened, margins have come down to almost single digit from late teens and there is a real fear of disruption. Could we see a return to that kind of a PE multiple for a stock like Maruti ever?
I definitely think that what we have gone through in the last eight to nine months is exceptionally lower growth. Typically we do cycles, but what happened in the last eight to nine months was a bit of a negative surprise. By and large, Maruti has maintained its market share and looking at the current penetration, one cannot say that we will not be able to see a 10-12% volume growth for Maruti over the next three or five years.
In fact, because of the slowdown, the companies which have survived and have put in place some kind of a strategy, would be in a better position to participate in the growth going ahead. Maruti can definitely come back to much higher levels both in terms of PE, a stable market share and as growth comes back, the operating leverage would also kick in. One should really have a positive bias on stocks like Maruti and we should not really be too much perturbed by the kind of correction that we have seen in the recent past.