The markets are very quick to figure out that capital is going to leave China and India is going to be one of the big beneficiaries. What should be your strategy this week?
Last week had begun with a lot of concerns; US Fed meeting and of course the Evergrande issue was looming large, but before the end of the week, the world markets had moved past it and started rallying.
As you rightly said, people have realised that the Indian market probably will continue to be the best performing markets, at least amongst the emerging markets. So, a lot of money has started moving into Indian markets. Yes, the China issue will benefit India and they have started benefitting India. US risk on mood will benefit India and has been benefiting India.
But on top of all this, the biggest thing which has happened is a structural change. Domestic money, domestic retail — either directly or through the institutional route via mutual funds or insurance — have been pouring into the market and that has been providing a fantastic backstop, holding up our market.
So even if there are some corrections in other markets, Indian markets are not coming down and that is holding. That also gives us strength. Corporate results have been improving and some of the sectors are in a multi-year bull run and definitely there is some rerating happening. IT or technology definitely is one sector. So are pharma, specialty chemicals and a lot of other domestic facing sectors like construction, infrastructure which are again looking very good.
Overall, while the index has touched new highs the Sensex has reached 60,000 we are still positive on the market and we believe that it is still a bottom up stock picker’s market and if somebody is trying to build a portfolio, it is a great time to buy good quality stocks. They will be handsomely rewarded over a period of time. It may not be in the short term but over the medium to long term they will reward even from the current levels.
Anything that looks interesting now?
I think technology and in the technology space, we like . It is a differentiated technology company. It is among the top four but it has got a completely differentiated business model with a clear focus on product and they have been doing it for a very long time. They also are deeply into engineering R&D, platforms and of course digital. That is going to stand them in good stead going forward.
We expect that from Q2 onwards, performance will start improving significantly. The order book is robust and the free cash flow is increasing. We expect the dividend payout ratio to increase and we believe that investors can look at a target price of about Rs 1650 and buy for a year.
We also like the construction behemoths Larsen & Toubro as the construction infrastructure spend and the hydrocarbon capex is coming back because oil prices are going up and most importantly, L&T has got three technology companies inside it, Both L&T Technology and L&T Infotech and
. The way the technology is moving, there is a significant value sitting inside L&T which is growing and increasing because of these technology companies. Somewhere that is going to be rerated and L&T deserves a rerating and there again, we are recommending a buy with a one year plus time horizon in mind.
