What is your view on Hindustan Zinc and Hindalco?
The entire metal and the commodity pack has seen a very solid move on the back of an underlying price trend for the base commodities and within that, on the non-ferrous side, we like Hindalco. The Novelis part, which is 70% of the EBITDA, is paying out well. For the rest 30%, there can be positive triggers going forward. So, definitely Hindalco and to some extent Nalco are the preferred plays.
Coming to Hindustan Zinc, we think that is a very high beta play on the commodity cycle and we do not have a very strong and clear view on the zinc cycle per se but when you see this kind of an uptrend, you will find opportunities to participate in some of these stories which are looking quite compelling and cheap at this point of time.
Why is Bajaj Finance, which is a retail dominated franchise, doing extremely well?
The market is looking at the situation beyond the near term — three months or so. What is more important is that the larger companies where the overall balance sheet position is much better, will be able to grab the incremental market share for whatever revival happens over the next few years. The market is looking much beyond the near-term challenges. We are seeing strong revival across the economy and majority of that is led by the retail consumer durables etc. When we are playing this unlock theme, this component will also get due attention from investors. Bajaj Finance is something that we should definitely have as a part of our core portfolio notwithstanding what may happen in the near one or two months.
I have got two reports on Tata Motors. The one from Goldman Sachs believes that the stock should correct post numbers on the JLR front that were not great. The report from CLSA believes that cash flow generation for Tata Motors has been exceptionally strong and the stock should touch rs 450. Where are you on Tata Motors post numbers?
I am very positive overall on Tata Motors. The numbers were a mixed bag. There were certain challenges in terms of the volume growth in the near term but near term headwinds notwithstanding, we could see triple benefit; a) macro recovery b) company specific volume and margins drivers which are in place. c)Sharp improvement in the free cash flow and the leverage position that Tata motors is in today.
We are extremely positive from a 12-month perspective. You might see a little bit of volatility. This is a high beta stock and you might see a 10-15% swing on a given day but we definitely have a very positive view on Tata Motors from a 12-month point of view.
What is your take on the real estate space?
The new launches by the real estate players have come off significantly but the overall offtake has been quite good. In the first quarter, the offtake almost showed a 24% growth, particularly on the residential side. As lockdowns get extended, people would definitely want to look out for larger places to stay and that trend is visible across the major cities. We might see the momentum playing out well for larger players like Godrej Properties, Oberoi and to some extent, some of the Bangalore-based real estate companies.
But the situation is not clear on the companies which are heavily focussed on the commercial leases. So, Godrej Properties, Oberoi are the names that one can look at in real estate space.
When it comes to infrastructure would you continue to be very selective?
Yes. The entire capex cycle is getting a bit delayed and even L&T numbers were pretty okay. One should not get too aggressive on paying the entire infra/capex play. It would make more sense to go for an unlock play or some sort of a revival once the economy opens up and a bit of normalcy comes back. Once you see very hard evidence of the spend by the government and the infra reviving, it would make sense to play for infrastructure companies.
What is the trade from here till June or July? If the trade is a reopen trade, it is time to buy autos, multiplexes and aviation. Do you see IT and pharma taking a back seat?
In the last three months, midcap IT names have really done well. Persistent, Mastek and a whole host of companies which are part of that midcap basket, have outperformed the large cap names like HCL Tech and TCS where the numbers were not that great.
The underperformance is quite stark and we will see the patches where the large caps or the companies which are not showing that kind of a robust momentum would underperform. But at this price point, both HCL Tech and Infosys are looking quite compelling because overall the deal pipeline and the growth outlook remains quite good. From a midcap perspective, we can look at L&T Infotech and Persistent Systems.
What is your outlook on PSUs? Do you see value there?
The entire pack is showing a lot of momentum. It is not very clear whether there is going to be any sort of announcement in terms of the fresh divestment or capital infusion in some of the PSU banks or something relating to privatisation of some of the PSU banks that the market has been hoping for.
Particularly from the domestic side, the retail flow is so strong that people look out for opportunities in high beta space like PSUs. Within the PSU space, SBI is our preferred pick and in the non-banking space, Bharat Electronics is something we like. Even in BPCL, from a 12- month perspective, we will see some progress. There will be good interest building up and the fact that the government has been hiking the petrol and diesel prices is definitely good news for OMCs. The overall bias towards the PSU names continues to be positive.
What are your preferred picks within the financial basket?
In the last two months, banking stocks have been pretty much at the same place. Given that the worst of the lockdown issue is behind us, we are looking at positive data points over the next one or two quarters and the entire unlock theme is going to play out. Banking and financial services are going to be the biggest beneficiary of this trend and within that, in largecap names, we like
, Axis and and within the smaller banks, we like IndusInd and .
We like Muthoot Finance within NBFCs. As gold prices continue shooting up, there is going to be a liking for a name like Muthoot. Overall, we think this is going to be the biggest theme to play this entire unlock event which is ahead of us.
In the mid and the small cap space, where do you think it is time to take some chips off the table?
We had come out with two tactical baskets on the metal and the commodity side of the trade where we had seen a very strong up move. We have booked out of sugar and metal companies, where the upside has been very strong and which were giving 30-35% return in the last two months.
We think that in some of the pockets where the upside has been quite strong, despite the underlying price trends being encouraging, it makes sense to book out and focus on companies or sectors where the price action has been a bit muted and incremental data points are suggesting some revival.
We have come up with a new basket to play this unlock theme where we are putting names like Crompton, ABFRL, Orient Electric. From a retail participation point of view, it makes sense to do this kind of a rotation in the sectors and stocks which are part of the midcap basket.
