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Deal or no deal, some PSU stocks are worth betting on: Sudip Bandyopadhyay

I have been bullish on this PSU universe for last six months.

ET Now|
Last Updated: Nov 02, 2019, 12.49 PM IST
Sudip Bandyopadhyay, Inditrade Capital-1200
There are excellent bargains available in the midcap universe in multiple sectors -- economy facing as well as traditional consumption sectors, says Sudip Bandyopadhyay, Group Chairman, Inditrade Capital. Excerpts from an interview with ETNOW.

What do you make of the optimism that we have seen in the last few days?
The environment changed last week and that kind of led to this optimism. First of all, the global markets definitely showed a lot of interest and cheer. The liquidity splurge by the central banks across the world continue. The US Fed has reduced interest rates once again and that did create a risk-on mood among the institutional and global investors. This definitely augurs well for emerging markets like India.

As far as domestic markets are concerned, it started with some of the large banks’ results. SBI results as well as ICICI Bank results were excellent and much better than what the market expected. On the other hand, there was the news flows coming from companies like Reliance Industries where they talked about creating a separate platform for their digital assets and eventually inviting investors into making the company debt-free. All that was music to the ears of the investors and that did create a lot of excitement. This was also backed by probably a rumour that there is going to be some further tax cuts which will benefit the financial market investments.

What will be your view as far as the midcap space go? Do you think the midcap space is much more interesting and is that where you expect a catchup role?
I definitely view midcap as much more interesting compared to the largecap universe. Even this rally, which we saw over the last few days was predominately driven by largecap and the Nifty-50 stocks. The midcaps did show some excitement but it was nothing compared to what happened in largecap stocks. However, in the midcap universe, one needs to be extremely careful. It is not only midcaps which you should look at. You should be extremely selective but if you do that, there are excellent bargains available in the midcap universe in multiple sectors -- economy facing as well as traditional consumption sectors.

What about auto stocks? They have declared their numbers in October. They had a great rally. Some of the numbers show that cost cutting has been pretty decent for some of these names. What do you make of the auto stocks, the underperformance and the bounceback?
It is a fantastic set of numbers, which by and large, most of these guys have declared. But I would not read too much into this yet. The numbers are pretty much on the back of significant discounts and schemes which they ran during the festive season.

As far as the auto sector in India is concerned, there is still a long way to go before we can say the sector is out of the woods. So I will be cautious. I will wait and watch the stocks. As far as the valuation is concerned, most of them were severely beaten down and some amount of recovery as part of short covering was warranted post these numbers.

But having said that, I also like to leave my thoughts on evaluation and whether to buy or not. If somebody is interested in the auto sector and is a little long term -- at least have one year plus time horizon in mind -- they definitely can look at Bajaj Auto and, may be Maruti Suzuki. I like Bajaj and I like what they have been doing. I have always been positive on their export business. It is one of the unique Indian auto companies which has developed their own export market over the years and that is standing them in good stead now. Their BS-IV readiness as well as launch of electric scooters augurs well for the company going forward.

Do you think FII sentiments have also turned around?
Definitely. Look at what is happening. They have been pumping money in over the last few trading sessions. The global liquidity is significant and little bit of change in sentiment definitely helps them to bring money to emerging market like India.

Corporate results have been better than what was expected. In some cases, there have been positive surprises and definitely FII money is back. Of course, we still need to get the macro act together and the FIIs have been very keenly watching the developments on the macro front.

Any largecap steel or metal stocks in view?
If you divide the universe into ferrous and non-ferrous, I will remain bullish on non-ferrous. As far as the overall global demand scenario is concerned, I am still sceptical about what is going to happen to the US-China trade war and the demand in China. I am not being too aggressive on ferrous metals. If I have to pick up metals, I will probably look at non-ferrous companies like Hindustan Zinc or even a NALCO or Hindalco. That would be a better bet over the next 6-12 months and valuation-wise, they look more promising at this stage..

PSUs as a pack has seen pretty good interest. There could be strategic moves coming in some of the PSU stocks. Is that is a trend that you would want to play?
Absolutely. I have been bullish on this PSU universe for last six months and forget the banking names, the names one needs to watch out for are excellent companies in their own rights. Bharat Electronics has been a long-time favourite. It is a fantastic company in defence electronics sector with a strong order book, excellent balance sheet, decent track record of execution and the confusion regarding contract, valuation, costs plus move of the government all are behind them. Investors can get into Bharat Electronics at current levels. Disinvestment, no disinvestment they are in for good ride there.

As far as the other space is concerned, we like NTPC. It is a power sector company, definitely one of the best positions in terms of forward and backward linkages.

Also, in terms of cost of production. So the stock can be looked at even from a dividend yield perspective. These stocks do look reasonably attractive.

As you pointed out about the PSB space, one will have to be patient because it may take some time the deal has to go through. The person has to come and start to give the synergies. Do you think it will require a lot of patience to get into some of these PSUs?
If you are looking for those stocks where a deal is imminent, maybe yes. But as I was mentioning, deal or no deal, some of the stocks do look attractive. But for a minute if we come to the stocks when the deal has been talked about most is BPCL. It is an excellent company in its own right.

But the strategic sale and getting a strategic investor definitely will take the stock to a different level. Valuation has already moved up on that expectation. If you are planning to invest in BPCL, you need to be patient and you are absolutely right, it is not going to happen overnight, unless the valuation of the deal itself is significantly higher. This I think, is unlikely at current levels.

Also in some of the other names which are being talked about and where disinvestment maybe imminent, the valuation has already moved up. You can definitely be an investor in these stocks, anticipating disinvestment but you need to be patient and you should keep your horizon at a minimum of one year plus.

Anything looking interesting in the near term?
I like the entire banking space. I specifically like to talk about midcap banks like a Federal Bank. At current valuation, it definitely looks attractive. One can buy it with the target of about Rs 110 with a six-month perspective.

The bad asset quality has been pretty much discounted. In fact, the on-ground performance has started improving. The management quality is fantastic and the stock can be looked at. On the larger banks, ICICI Bank definitely deserves mention here. Even at current levels, it is definitely a good buy from the investors’ point of view. Asset quality definitely has been improving. The quarterly results were fantastic.

Also as and when the NCLT cases get decided, ICICI will be one of the significant recipients of proceeds. All these cases were fully written off in the books. Retail assets are increasing rapidly and retail assets yield higher margin, also the deposit base is growing which leads to higher margins. Definitely, ICICI can be considered.

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