Bet on these 4 midcaps to ride pre-poll rally: Hemang Jani, Sharekhan
Though some of the midcap stocks have rallied 10-15%, there is a lot of room on the way up, says Jani.
The market rally is not making everybody feel very happy as hardly any folks on the streets have participated!
Typically in the initial stage of the rally or a bull market cycle, it starts with people having some kind of doubts or being in a state of denial. Having seen a significant underperformance in the broader market even in the Nifty, only a few stocks have actually participated. So, people are still a little unsure of what is really happening.
Also, there is a very important event like election coming up. Earnings growth is clearly not there and one is not really sure how it is going to play out. So, it is justified to a great extent that people would be a little doubtful or circumspect. But having said that, we have to keep in mind that this is driven by strong inflows from FIIs.
Domestic funds data show that we are still seeing regular outflows and even the retail money has stopped coming in. This is because of the kind of money which is coming in momentum as we participate in a catch-up rally. There is some more room to go before this fizzles out.
If you buy now, do you run the risk of running into a rough weather or would the market give a steady, solid and vertical climb for another 4-5%?
As we have seen the carnage in the broader market, the stocks have corrected by about 40, 50% and even more in some cases. The rally that we have seen is hardly about 10-15% and we have to keep in mind that a large part of the sustainability of the rally hinges on two factors -- one is how the election issue plays out and more importantly, how the earnings picture emerges.
One has to really hope that both these factors play out well but I definitely think that though some of the midcap stocks have rallied 10-15% there is lot of room on the way up because we have seen a huge huge underperformance over the last one and a half year.
Is it just a coincidence that on the same day, ICICI Bank and HDFC Bank both hit record highs. One is retail and the second is corporate. What is the market logic here? Also there is Bajaj Finance. Is it all about financials and markets are not differentiating?
ICICI Bank of late has definitely seen a bit of a rebalancing across the portfolios of the fund managers. Part of that has also caught up because of the larger part of the book getting cleaned up, better valuations, lot of subsidiary value etc. Definitely that is what is playing out for ICICI Bank.
As far as Bajaj Finance is concerned, because of the kind of carnage that we had seen in NBFC, people will want to stick to the highest quality and that is why we are seeing a lot of money from most of the other NBFCs moving into Bajaj Finance.
Since the banking and financial vertical has a very high weight in the index, top banks or top NBFCs would definitely rally particularly when the money is coming from FIIs who typically look for largecap and quality stocks. It is quite natural that we are seeing action across all these three top notch stocks.
What would you like to classify as a pure election bet and what would you like to classify as a classic compounder?
Talking about the classic compounder, it is pretty much known that we have a lot of focus on consumer names like a Bata or a Titan or the whole FMCG basket. It will not probably excite a lot of people but typically if one is looking for a tactical opportunity because of the flows which are coming in, because of the pre-election rally, we are also looking at some of the midcap names.
Within the midcap names, some of the ideas that we would definitely consider are RBL Bank which will languish but we are seeing good amount of momentum come through over there.
Atul is something that we have been liking for a while though it is not exactly a midcap stock, it has got Rs 9,500-10,000 crore of market cap but after a gap of two years, the company has started performing extremely well. It has a very interesting portfolio of businesses.
Apart from that, from the midcap infra side, there are some stocks like Kalpataru Power and KNR Construction because of huge announcements before the election dates were announced.
We have seen a carnage across the midcap infra space and Kalpataru and KNR Construction are the two names that we like from a high beta perspective purely from a pre-election rally point of view. These are the bunch of ideas that we think should do well for investors.
What are your top mid and small cap bets? Do you like Indian Hotels?
Yes absolutely Indian hotels is something that we like because if you look at the core operating performance in the last quarter that international properties, the room revenue has grown by 20% and F&B revenue has grown by 18% after a long time. If you look at the demand supply dynamics both internationally and in India it is actually getting a little better. We are seeing a modest hike in the tariffs and very high occupancy rate of 72-74% so though it is a bit a slow moving stock it has not created a huge wealth for investors but given the kind of improvement that we are seeing in the core operating parameters and a good quality group that it belongs to we think that Indian hotels can give a 10-12% kind of an upside from current levels.