Betting on these 5 stocks for making money: Sanjiv Bhasin, IIFL Securities
Look outside the index, the broader market should stand to gain in the next month or so, says Bhasin.
What is your take on the RBI policy? Is the rate cut of 25 bps what the markets were looking forward to? What did you make of it?
The rate cut has left all the analysts on the sidelines of both the equity market and on the credit side. Nobody was expecting a rate cut and nobody was talking of Nifty at 11,000 and beyond. Those are both proverbial points. Now credit will expand over a period of time but the sentiment is extremely positive.
The new RBI governor has done a lot to reinstate confidence in PSU banks, in NBFCs and over a period of time, I see most of the problems getting sorted out. There is an overhang from the IL&FS issue but a large part of that is telling you that some of the NBFCs which have stretched themselves extra are definitely going to be hit.
But the larger picture is that banks are going to be in a sweet spot because they may not transmit the entire 25 bps and cost of funds will fall for them. Also you are in an environment where inflation, yields are at multi-year lows. This is much in order, given that even the Fed is now sounding dovish.
On equity markets, the left out feeling was there and most people are still doubting the rally because selective largecaps have made this high. The broader market has still underperformed but that is the way equity markets are. The broader market may start to catch up and you could see consolidation in the largecaps.
You believe that auto is a good contrarian bet. You like Eicher as well as Ashok Leyland. What is the rationale?
I liked Eicher very much below Rs 20,000, Maruti at Rs 6,500 and Ashok Leyland at Rs 81. All three have given a stellar rally. The rationale was that autos for the last three years has been the biggest consumption driver. There has been one or two quarters of NBFC fiasco and the insurance part may have played out negatively. Consumption spending is coming back and we are very bullish on the broader market.
Autos as a consumer discretionary will see valuations very much in buyer’s favour if you were buying the fear. I continue to be overweight on Maruti, Eicher, Ashok Leyland. Ashok Leyland by the way will be the largest bus-maker not in India, but globally. They are getting huge traction on some of the EU orders on electric vehicles and so on.
The bus and the LCV market is now looking very bright for slightly longer term. Autos and metals as a contrarian have played out well. We still think there is at least 10% upside in the likes of Maruti and Eicher.
What exactly is your take on the cement space? The overall demand-supply mismatch has narrowed down significantly. What is the view on the general trend within the cement basket?
Cement has been a slight bit of a laggard in the sense that volumes may have played out but margins and the price of petcoke has affected profitability. But this is a one to two quarter hiatus.
Low-cost housing continues to be the theme and let us not look at the next three months, but months beyond the election. You will see a huge capex from both the private and the government side gathering steam and cement is a no-brainer. If you have a slightly longer-term view, on this correction, accumulate UltraTech and ACC. You can add JK Lakshmi Cement and Shree Cement. Shree Cement by the way came out with the best numbers as their margins were highest amongst the lot and that trend can continue. Cement and commodities could be a huge outperformer in the second half of 2019.
How have you looked at the steps that have been taken? These efforts to create fewer but stronger banks with large balance sheets?
These are welcome steps. You merge some of the bad apples with the good ones and you are opening that synergies of space and more economies of scale play out. Obviously, it will have short-term dampener because the bad banks will take time to be recapitalised. But banks have been well recapitalised and if you stick with the larger ones, then there is a huge amount of wealth to be created given capex revival and write-backs for corporate facing banks. The likes of State Bank, BOB and Can Bank can be huge outperformers.
Their numbers will prove from the March quarter, when we see a lot of write-backs on infra, power and some of the resolutions of IBC. IBC is the powerful tool. Only, these stocks can take some time before the return on balance sheet improves. It is a very welcome step if you get fewer banks with more consolidation and mergers, but in the short run, they may not create too much wealth for you. It is only in the longer term that they play out well.
What is view on Coal India and NMDC?
Coal India is a proverbial value play with 8.5% dividend yield and the results this quarter will be the best in 18 quarters. At 11 times price to earnings, I have never seen it cheaper. Obviously there is the overhang that at Rs 260, the government sold some of its stake and so on but PSU stocks are trading at abysmal levels. ONGC, NTPC, GMDC, even Coal India. Once we are through elections, PSUs will create a lot of wealth in the second half.
We have seen that most of the PSUs have been performing excellently in their business lines. So, Coal India becomes a no-brainer. I do not rule out a 25% upside. I know it has been a laggard but that is where a value pick comes.
With that, you can also add NBCC, one of my old stocks which has not performed much but I can reiterate that this is an excellent company. It has pan India visibility in tier I, tier II cities where order flows and construction activity are picking up in a big way.
GMDC dividend yield is extremely attractive and NMDC also, given that iron ore prices are moving up. This means the steel cycle and commodities are expected to do well globally. Definitely, these would be contrarian buys with a 25% upside by the end of the year.
Which are the pockets that could take the markets higher in the next phase?
Autos, metals, consumption and construction are looking good. As a sector, consumption has been a huge outperformer -- whether it is durables or discretionary or staples. Even though valuations are looking stretched, they still seem to be the best place to be. The other caveat is that we have had a very good rally from 10,500 back to 11,200. Nifty maybe pricing in everything here. You may consolidate but not see too much on upside over there.
It is the broader market which I think can come back and that will again depend on soothening of a lot of ex-factor, the ADAG problem, DHFL. Sooner, rather than later, people will try to get into better names like IDFC Bank First. I have been extremely bullish on this stock. This is a doubler in next two years. It is going to be one of the biggest gainers on the fiasco. So be stock specific.
Coal India, NBCC, IDFC Bank First, Ashok Leyland and Eicher are going to be marquee names where you will make money, but I think maybe the index is done for the time being. You will wait for more colour, closer to the election but it will be the broader market which should stand to gain in the next month or so.
When will L&T start performing?
That is a good question but you have to be patient. Look at the numbers from Siemens, Cummins. They are both telling you that industrial capex is reviving. The L&T management is extremely bullish. Remember that these stocks will not trade at a significant discount to better valuations because in two quarters they can come out with numbers which they have not done in 12 quarters.
So L&T, ITC are no-brainers. If you are a value investor, you will make a lot of money. The problem is they may have been in range for some time and the market is justly rewarding some of the outperformers. But these are extremely good stocks to own and must-haves in your portfolio.