Going stock-specific in EPC, chemicals and auto sectors: Abhimanyu Sofat

Are your clients feeling happy, excited or left out, given that the benchmark indices are up more than 10%?

This year has been pretty good for investors if they have stuck to new themes like insurance. The corporate bank side also has done pretty well. Going forward, one needs to look at the crude prices going up. The flows are pretty good as of now and with the dollar index going down, Emerging Markets may continue to have a decent run going forward as well.

With regard to where investors need to park their money, it seems a lot of people think smallcaps is the space to be in for this particular year as most of them have corrected by around 60 to 70% from their all time highs. But one needs to be cautious on that because typically the smallcap indices go up to all time highs at the fag end of a bull run and so that may not happen.

Right now, our theme would be to continue to be positive on the corporate banks space and not get into PSUs because the RBI report said on Friday that there is still an expectation of slight increase in NPAs for this year as well.

We like corporate banks. On the insurance side, SBI Life will continue to do pretty well for us because growth will be pretty decent for the company going forward despite the valuations being not that attractive.

As we near the Budget day, some of the midcap companies which we are excited about would be KEC International and Deepak Nitrite. From the sectoral perspective, we have recently turned positive on automobiles. Maruti and Hero MotoCorp stocks have been trading at a multiple of around 13x. We are quite positive on these stocks from the next one-year perspective.

Over the weekend, finance minister allayed bank concerns saying do not fear any harassment by agencies. In a bid to boost digital payments, she also announced a waiver of MDR charges for some particular modes. Are these steps going to be enough to boost the lending culture?

A lot of the moves which the FM talked about are quite positive, especially with regard to doing away with the SARFAESI Act. Now, the banks will have an upper hand in terms of recovery of money and that would be a significant game changer for the entire sector.

Add to that, they had also announced Rs 8,500 -odd crore incremental recapitalisation. Overall, the corporate sector lenders should do pretty well over the next two years.

Over a period of time, the NPA level for the entire sector would come down, despite the RBI saying that there might be a slight increase this year. In terms of what to buy, Axis, ICICI banks would continue to remain on the top because the earnings momentum is likely to be better. They will have a better ability relative to the PSUs banks except for SBI to take any hit from incremental NPAs. Sticking to corporate bankers would be a better thing to do over the next couple of quarters.

In case of telecom, for the moment, there is no relief in sight vis-a-vis input tax credit relief which was being sought, though not much was expected there. With regards to some of the plans being implemented, it is still going to be a long way. We have seen a lot of buy calls coming in on Bharti. What kind of time frame are you looking at?

In case of Bharti, they have just increased the price for one of the prepaid offerings as well minimum number of days? validity. It looks like the pricing power for the industry has really come back. They are relatively much stronger than Vodafone clearly because of the debt equity as well as EV to EBITDA. They are significantly stronger and somewhere close to around 3.5x, relative to in case of Vodafone. Bharti should do pretty well. They do have an opportunity for further monetising all their investment overseas, especially the African business.

On the 5G also, they would be in a better position relative to Vodafone. From next one-year perspective, among the three companies, Bharti should do pretty well. In case of Jio, the kind of growth we are seeing in terms of subscribers that has subsided relative to what rate they were growing till two quarters back. That might affect the valuations that Jio is getting. Bharti, considering the significant amount of investment that they have done in the infrastructure, should do pretty well going forward. If one does own Bharti, the risk-reward will continue to be better relative to other companies at this particular price point.

Reliance of late has been under a little bit of pressure given the debt overhang. There has been no new development when it comes to the Aramco deal, apart from the fact that government is now asking for an award on that Aramco transaction. So, it is still up in the air. We have been receiving reports on what has been in the offing for Reliance Retail but it is the debt overhang that the market is interested in. How would view the stock as we head into 2020?

From a short-term perspective, people are a little bit careful in considering the valuation for Reliance Retail. That has been one of the reasons why the stock has not done that great.

Overall, if you look at things from the next six months? perspective, Reliance is looking at debt reduction and getting close to around Rs 1,10,000 crore. This will be an important criteria to see how the company deleverages, going forward. Obviously, on the core business, we are seeing that the margins on the refinery side may improve going forward.

Now, with the crude price going at a three-month high, we see that going forward, the core business also should do well for the company. With regard to Jio, as we had earlier talked about, the growth is not as high as what it was earlier in terms of top market share gains for Reliance Jio. So, how the Aramco deal happens and what kind of money comes in will be critical for returns from the stock this year, with regards to the multiples over the next one year. It has already run up a lot. Over target for the stock from next six month?s perspective would be around Rs 1,650.