ET Markets
12,045.80-67.65
Stock Analysis, IPO, Mutual Funds, Bonds & More

Betting on Suven Life, FIEM Industries; Voltamp & Amber among midcaps: Sanjeev Zarbade, Kotak Securities

The small and midcap stocks have been fairly resilient and there is a lot of investor interest that has started showing and some of our large investors have been continuously buying in the small and midcap stocks. Going ahead, we believe we will see the underperformance that the small and midcap index showed in 2019 correcting in 2020.

ET Now|
Last Updated: Jan 24, 2020, 09.13 AM IST
0Comments
ETMarkets.com
Sanjeev Zarbade-Kotak-1200
Going ahead, we see the underperformance in small and midcap index in 2019 correcting in 2020, says Sanjeev Zarbade, VP, PCG Research, Kotak Securities. Excerpts from an interview with ETNOW.

Earnings: Buy on Dips for Big Boys
The numbers from Axis Bank as well as L&T were weak to some extent as compared to our estimates. But the buying could be on the back of underperformance in L&T, especially in the last three to four months. Also expectations of some reforms in the upcoming Budget could also be driving the buying in Larsen & Toubro.

At the same time, the geopolitical concerns and the crude oil prices which had shot up, have now corrected. It is a combination of these reasons -- underperformance, run up to the Budget, as well as some improvement on macro concerns for the Indian economy -- are driving the stock prices.

PNB Housing: Disappointing Fare
We do not track PNB Housing numbers but in the quarter ending December across India, real estate sales were down around 15% and even the new launches were much lower. There is a clear slowdown for home loans. However, a lot of these housing finance companies could be expecting some measures in the Budget in terms of giving a boost to the real estate sector or cut in income tax which could drive demand for home loans.

These expectations could be the reason why we are seeing some buying in the housing finance companies. However, the numbers are clearly disappointing because the macro picture is not very positive for real estate and housing finance companies.

Midcap Catch-up: Stocks to Bet on
We are hearing from our dealing team that while there is not much buying in the largecaps, a lot of them are richly valued or fare valued and given the kind of macroeconomic picture that we have, it is very difficult to put aggressive buy on the largecaps. However, the small and midcap stocks have been fairly resilient and there is a lot of investor interest that has started showing and some of our large investors have been continuously buying in the small and midcap stocks.

Going ahead, we believe we will see the underperformance that the small and midcap index showed in 2019 correcting in 2020. Within the sector, we continue to be positive in the pharma stock, Suven Life. In auto components, we are positive on FIEM Industries; in capital goods. we are positive on Voltamp Transformers; in consumer durables we are positive on Amber Enterprises and other midcaps. In chemicals, we are positive on Balaji Amines and on Quess and NIIT in IT.

Consumer Companies: What the Numbers Tell
We do not look at the Westlife numbers though Radico Khaitan is under our coverage, we have a positive outlook on the stock. In addition to that, we would be looking at other consumer and consumer durable names. Havells came out with its numbers a few days back and numbers were quite weak especially in the consumer electrical category. Even in the TVs, there has been a sharp decline. That is a sector that is exposed to real estate and there is a bit of a weakness.

On the other hand, numbers of general consumption companies like Westlife and Radico Khaitan could suggest that this kind of consumption is holding off but consumer durables are exposed to real estate cables and electrical heaters and the numbers have been quite weak.

We continue to be positive on Amber Enterprises which is a contractor for room air conditioners. In the entire consumer durables and electricals basket, we are most positive on the room air-conditioning sector. Amber is the primary contract manufacturer for the sector, we are expecting numbers from this company as well.

Tracking Telecom: Bharti Airtel
We have a buy call on Bharti Airtel and we believe that the price actions that have happened in the telecom sector are positive and could lead to a multiyear EBITDA growth for the sector. At the same time, there is a possibility of the sector being only a two-player industry and that needs to be watched out. Also, Bharti has raised funds through equity as well as debt. A lot of investors are supportive of the stock and its potential. Broadly we have a buy rating on the stock and we have even raised our target price on the company.

Financials: RBL Bank & AU Small Finance Bank
In case of RBL Bank,the concerns on asset quality continues to persist although the management and the bank has made lot of improvements in the last three to four quarters. To its credit, RBL bank has a decent capital adequacy ratio and also the gross NPLs have been in line and the slippages have been weak.

But one never knows whether this is likely to be the end or fresh slippages could come up in the next three to four quarters. That is a concern which we are seeing especially in the smaller banks. Even Federal Bank numbers were quite great but there is not much of buying happening there.

As for NBFCs which are exposed to the real estate sector and loans against property (LAP), as well as the smaller banks, there is a bit of a scepticism among investors and that is the reason we are seeing some pressure on stock prices.

Also Read

Kotak Securities recommends buy on Finolex Industries, target price Rs 641

Kotak Securities maintains reduce on TCS, target price Rs 2,020

Kotak Securities maintains buy on KNR Constructions, target price Rs 305

Kotak Securities maintains buy on Engineers India, target price Rs 130

Kotak Securities maintains buy on KNR Constructions, target price Rs 305

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service