What should be the investor strategy right now – buy the dip or rather keep the shopping list ready for now?
With 17,500 levels being taken out on Nifty, we have seen an accelerated correction in the market and we were hoping that a 3-4% correction is how it would pan out, but the correction is a bit longer. Our sense is that a 8-9% correction is very much possible. So we would expect the bounce to come at around 17,000 levels.
From there on, we would expect that markets to make a new high in the next one or two months. It will go past the 18,600 level and subsequently, for the next one year, our target is about 20,000 for Nifty. Earning wise, there is very little to complain about quarterly earnings, which was about 180 against our expectation of 165 and macroeconomic wise, there is very little to complain. Banking looks quite attractive from a risk reward perspective. Besides that, we have seen a decent amount of crack in IT where the outlook remains fairly robust.
Reliance also has its fair share of correction but our sense is that probably there would be some more correction and that is where buying should emerge.
So whether it is largecap, midcap or smallcap, one should be selective. It is not to say that midcaps are looking more attractive compared to largecaps and all are looking less attractive. One should keep the shopping list ready across caps.
Besides banks, what would you be tempted to buy in the fall? Do you buy more of the same, the leaders up until October?
In the case of banks, last quarter’s numbers showed growth in the housing loan portfolios in the range of 15% to 28-29% — be it banks or be it HFCs and sort of a secure book to look at. So banks like SBI which looks very attractive to tier I names like HDFC Bank, Kotak Bank. Besides that HDFC also is looking quite good because it is one of the biggest plays on housing. We also like
. We have seen a re-rating in this stock and it is now trading at about 10 times adjusted book basis. Lending is a more difficult business compared to payment business. So payment companies going into lending is a bigger challenge compared to a company which is into lending and going into payment business. All the tier I banks including the PSU banks look attractive to us.
How should one look at stock like Vedanta?
The challenge with Vedanta is that it is on our restricted list. So I cannot really comment but coming to metals in general, we are seeing that Tata Steel corrected about 30-35% while SAIL has corrected about 40 odd percent. This quarter we have seen about Rs 3,000 to Rs 4,000 kind of pressure on the EBITDA per tonne. With the kind of price hikes that they have taken, some of it will get restored but the challenge is that for the next one or two quarters, one can see coking coal prices impact by about $100. The good part is that China is cutting down their production and that would keep the prices at elevated levels.
We like Tata Steel, SAIL. JSW is a hold because of the expensive valuation it is trading at. Besides that, Hindalco is another stock which we like. So metal in general has seen a decent amount of price cut and our sense is that from going forward onwards, things will keep getting better after a quarter or two. Probably one or two more quarters of sideways movement or consolidation is what we would expect in metals in general.
We are keeping a tab on . Reliance Jio has lost 1.9 crore subscribers in September. Maybe they were not paying subscribers but the fact is that the markets were counting on those 1.9 crore subscribers too?
We have a hold rating on Reliance. The news especially related to O2C business which contributes about 62% odd of the top line had its share of impact. On the telecom side, we are quite optimistic with the fact that Airtel tariff hike in double digits will be followed by both Reliance and Voda Idea.
On Reliance, their losing subscribers may be a conscious call to increase the ARPUs and which is why we are looking at a lower subscriber base here. A positive way to look at it is that the quality of earnings in the telecom business is going to improve and which is why following the recent crack in Reliance, the stock is looking good. We see a lot of value accretion happening from the digital ecosystem. They are putting a lot more money in business. There are a number of triggers for the stock to do well.
At what price and after how much correction does Paytm become viable for a buy?
We were lead managers to the issue and so I will not be able to comment on Paytm. But in general, for a number of companies which have recently come up with IPOs, we need to understand a lot of these businesses in detail. From a valuation perspective, we are not really comfortable with a numbers of companies which have come up with the IPO. Except for EaseMyTrip, we have not really chased any of the stocks. We need to understand it. Besides, the listed space looks a lot more attractive and that is where we are focussing.
Would you be tempted to buy any of the IPOs or the newly listed names if they were to correct further?
Like I said, we need to understand the business model more in detail. From the prima facie numbers, we are not tempted to chase any of the stocks except EaseMyTrip where we have initiated coverage. We like it because it is a play on revival and the aviation industry. Also, compared to competitors, it is very cost effective and so at a lower scale of operation, it is making profit and whatever cost heads. It is substantially lower compared to the listed peers. That is one stock we have looked at. We are still evaluating a number of companies but as of now. We really do not have the comfort to track or recommend.
