“We like the FMCG space and if there is any meaningful correction over the next few days or weeks, particularly in , and , one could definitely consider entering these stocks,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL.
Can a buy be recommended on L&T after the earnings?
I think the entire capital goods space is showing very strong traction and in terms of order inflow and margins, the L&T numbers were pretty okay. The market is a little concerned about the fact that we are not seeing any strong capex revival indications from the management across sectors and that would have some bit of an overhang. But overall, if there is going to be a capex revival, then L&T would be the one stock where one can participate in a big way.
Compared to some of the other names like
and few other companies, L&T has underperformed despite the fact that it is a far more diversified portfolio and hydrocarbons is a very important component of the overall business. We continue to have a positive bias on L&T at this point of time.
What is the bias when it comes to ?
Zomato is something that we have been avoiding for a long time and the current market scenario is such that we think people are looking out for companies with a combination of valuation comfort and earnings growth, cash flow etc. Some of these IPOs were listed with a lot of hype and now that entire scenario has changed 360 degrees.
Also some of the decisions that Zomato has taken in terms of doing certain acquisitions has not gone down well with the market and there are technical factors like the pre-IPO deadline getting over. Though sometimes retail investors like companies which have fallen quite sharply – 50%, 60%, 70% – but one has to reckon that this kind of an underperformance may continue over a period of time unless there is a strong traction on the financial parameters.
« Back to recommendation stories
I don’t want to see these stories because
Are you a buyer of Zomato?
We are avoiding just because the stock has corrected from Rs 75 to Rs 41-42 levels. That does not make it attractive because at the end of the day, the market will reward performance and where you get a comfort that the risk reward is better or there is a visibility in terms of cash flow and profitability, it is nowhere visible at least in the near term.
I guess the recovery in the markets was in some ways led by FMCG but of late, we are seeing other sectors come to the fore and FMCG as such is taking a bait of a back seat or consolidating. Would you use this time to buy or add positions to the existing ones?
There was an initial cool-off in the commodity prices, the palm oil, the crude oil and many other commodities corrected about 30-35%. The markets started positioning in the consumer space and more so in the FMCG space. We had a good set of quarterly numbers versus market expectations and barring margin, the management commentary from HUL and a couple of more companies is quite positive.
Our sense is that this sector will continue to do well because there was an extended period of underperformance in the last one-one and a half years when the entire commodities and related space did well, compared to some of the defensive names in the consumer space. We like this space and if there is any meaningful correction over the next few days or weeks, particularly in HUL, Britannia and Asian Paints, one could definitely consider entering these stocks.
Two big auto names – as well as will be reporting their numbers and yesterday managed to hold on to their margin picture, What do you make of the earnings of Bajaj Auto and what kind of expectations should we have from Maruti and Tata Motors?
We feel Bajaj Auto in the next two quarters will surprise on volume growth. Also, a buyback is underway and that is happening on a daily basis. In the current scenario, we like Bajaj Auto very much. Even for Maruti, there could be a little bit of disappointment on the margin front but overall, the growth trajectory is pretty much in place with the launch of new products which they have done and there are many more in the pipeline.
If there is any small disappointment in Maruti results, we should look to buy into that particular correction. The overall bias for auto continues to be very positive with our top picks being Maruti, Bajaj Auto and some of the auto ancillary plays like Motherson Wire,
What is leading to this renewed optimism on reopen trades? Why is this sudden spike up again in niche consumption plays – everything from to even ?
Indian Hotels and Lemon Tree are the names which we cover and we have been maintaining that this year and may be the next two years are going to be extremely positive in terms of earnings growth for the hotel companies.
There is so much consolidation taking place and business travel has resumed in a big way across eight to 10 major cities which contribute a large component of the EBITDA for these names. We do like Indian Hotels, though it has actually run up almost about 20-25%. As far as Delta Corp is concerned, the stock has gone through a lot of correction and there are a lot of moving parts in terms of the GST and Daman licence.
It is a good stock for traders because it provides a 5-10-15% kind of a move but we are not very comfortable with the current state of things in terms of these moving parts. So we are avoiding it and we do not have coverage on it.
After day one of the spectrum auction, where does your bullish and bearish bias tilt towards?
Two quick takeaways from day one of the spectrum auction: One is that
Jio has actually put in about Rs 81,000 crore, which is much above our expectations of about Rs 35,000 crore. Similarly,
has also has put in a bid of almost about Rs 45,000 crore which is above our expectation of Rs 35,000 crore.
So unlike the market consensus, the kind of money which telcos are putting into the spectrum auction are on a higher side and though it may not require upfront payment, it will definitely add to the debt on the books of both these entities. I feel that there can be a small negative reaction for both Bharti and Reliance on the back of this spectrum auction numbers.
We have spoken enough about the IT pack and what is happening there. But there will be a valuation trough as well. When you look at some of these largecap companies, the sort of cash flow, dividend, outlook and stability that they have is quite amazing. At what price would you be comfortable for the top two names – TCS or ?
Our observation is that the valuations from 30 times forward for Infosys has come off to about 21-22 times. In the overall margin for the last two-and-a-half years, these companies were reporting some sort of negative margin and somewhere in this quarter or maybe next, we will see some sort of bottom formation when it comes to margin. We think that this two or three months could provide a very good entry for the names like Infosys and TCS because we do not have any uncertainty about the margins now.
By and large, the deal wins and the overall scenario is quite okay and the stocks have corrected about 30% so both Infosys and TCS we feel that this is a good risk reward and if over the next three months or so if you get any further 5-7% kind of a downtick we should definitely accumulate.
A lot was being said about M&M which two weeks ago also scaled to a 52-week high. The markets were enthused by the launch of the new Scorpio. M&M has also been making a lot of noise for electric vehicles.
The auto space has done so well in the last three or four months. The only point here is that having seen such a strong up move, it is not offering any meaningful upside to our price target. Maybe once we have clarity on the numbers and rework our earnings estimates, we will be in a better position to decide whether this still makes sense to have as a preferred pick in the auto space.
But we have been liking Mahindra & Mahindra. The positive trigger can come from the fact that the tractor demand is getting a little better versus what people were saying three months back and the company has done well in terms of new product rollouts and it has got a really good response.