Bank Nifty likely to outperform: Sanjiv Bhasin

Sanjiv Bhasin, Director, IIFL Securities, says today, there will be follow up buying on the back of an exceptional fall in bond yields and weaker US dollar..This consolidation has played out rather well on the broader market. But it is about time the elephant started to dance.

How do you expect the overall market momentum to pan out, particularly on the back of this strong handover?

We have been missing the momentum on largecaps. Today is a perfect occasion to catch the bears on the wrong side. I would say that this is just the start. I had told you 19,700 is coming within a few days of Diwali. 20,000 will be here by the end of this month. I am roaring because the midcap index is where the real money is being made. Today, there will be follow up buying on the back of an exceptional fall in bond yields and weaker US dollar, which has been boding ill for us for some time. I think this consolidation has played out rather well on the broader market. But it is about time the elephant started to dance.

Let us talk about the comeback of some of these largecap banks because over the past few days, we have been interacting with a lot of experts and they are of the view that for some of these banks which have not participated, it is going to be the time to make a comeback and valuations are looking ripe as well. Your thoughts?

Exactly. If I could bet on something, it would be the Bank Nifty. It got irrationally sold below 42,500 or 42,200. Now it has broken out on the technical chart above 44,000. I can guarantee that the Bank Nifty will hit a new high before the Nifty because that was the first one which started the slide. Irrespective of when HDFC Bank wakes up from its slumber, ICICI, Axis, Kotak will all add flavour to an already bullish PNB and Canara Bank and Bank of Baroda. Sum of parts it means that largecap private banks could shift the pattern for the Nifty to move up. But Bank Nifty will be the outperformer.

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What about Mannapuram? We were just discussing that the gold loan rate might be a bit muted but look at that solid set of profitability. The brokerages are calling it a re-rating candidate. What is your view on Mannapuram and even Muthoot for that matter?

Mannapuram came below 100 level for a short period when there were allegations of some management issues, which were actually denied. There was no issue on that. It was just hyper blown and there was an investigation. And from there, it has paid rich. I still think on a price-to-book, it is one of the cheapest gold lending stocks. 2% is what they make on gold loans. Now, they have broadened their portfolio. So one, they get assessed to only one asset class, which has one market, mark-to-market.

On top of that, if you diversify your portfolio, then your NIMs are going to rise in tandem. Definitely this stock is an undervalued one. I would not rule out even Rs 200 coming in the next one year. I definitely think on any decline or even now, given the numbers, given the pre-operating, pre-provisioning operating profit, this stock should be re-rated on the back of numbers and on the back of the changing environment of their book.

What is the outlook when it comes to Jubilant Food Works because in their management meeting, they talked about how they are likely to double down on the growth in Dominos and they are talking about mid-single digits for the same-store sales growth. Are you looking at this stock glass-half-full or empty?

We have avoided Jubilant on the back that the valuation being too stretched. We will have a relook at the management. But we put money in Devyani International. We think they are gaining more market share, particularly on Costa Coffee. Their other brands and Kentucky’s new mix is doing extremely well. We think that Devyani at Rs 180 offers a very good opportunity. That is one QSR stock, which is undervalued as far as the rest of the peer groups are concerned.We would advocate putting money into that. That for us, can double in the next two years.

What about the entire pharma space? While the numbers from Narayana Healthcare were good, even Wockhardt looks impressive because the margins have improved quite a bit. Natco was a bit subdued. Which stocks are best placed within the pharma pack?

You will have to take a basket of them. I thought Glenmark numbers and the disclosure from the management was very positive in the sense they have a one-time FX loss. Their new brands in what they have invested is showing colours. Their geographical bent on North America is yielding positive results. And 9% of their turnover goes into R&D, which is being overlooked.

This fall in Glenmark should be an opportunity to buy. If this quarter was a one-off because of one or two items, Glenmark is one of the stocks which is very strong on their portfolio of diversion of a lot of other businesses which they have. They have consolidated their businesses very well on the pharma side. Lupin is the other one on which we are very positive. As a disclosure, Lupin is in our portfolio along with Sun.

We think the best thing to play over here is SBI Mutual Pharma Fund or a Nippon Mutual Pharma Fund because consolidated, if you bought just a mutual fund, your lab will do well rather than individual stocks because that is the domain of the fund manager and the changing environment on a lot of the US FDA. But I would give Glenmark a relook. We will wait for the management commentary but this fall was overdone. This stock can rally back to 850, 880.

Give me your view on some of these stocks, like Eveready, Religare which is a candidate for hostile takeover and of course Dabur itself.

I think the controversy will be settled by whatever the explanation is and so on. I cannot comment on that because I am not privy to the exact status. These types of rumour mongering happen. Dabur is a very strong brand and Eveready stock which they took over, had a huge upside given that the original promoter had defaulted, but the business was very strong. We still think the Religare is extremely positive and that could play out well. But we will have to wait for this uncanny rumour mongering to play out. So, I would reserve my comments. I still think Dabur is one of the best FMCG players and their portfolio has done extremely well and if you own that stock, stay with it and we will wait for more colour coming on this whole episode.

A quick take on Indiabulls Housing. You have got an inline set of numbers, brokerages are a little bit underweight and then there is Grasim as well where the overall EBITDA is coming in below what the Street was pencilling in. How are you looking at these two result candidates?

We have a positive rating on Grasim and any decline is a buying opportunity. The whole portfolio of VFS and PFI are doing extremely well. Their local businesses are expanding and we know that specialty chemical commodities are doing extremely well and that is the next outlook. It is also the holding company of Vodafone and of UltraTech which in sum parts gives it a valuation edge. We would avoid Indiabulls Housing. We would rather go with Bajaj Finance.

They have raised Rs 9,000 crore which gives them a lending book of Rs 50,000 crore over the next one year and at this time, when rates are close to 8-9% on their NIMs, they would be the ones who would be laughing their way to the bank. The promoters themselves have issued 15% and participated in this buyback by issuing warrants at Rs 7,670 which is at almost a 5% premium and we have to identify where there is value and where the downsides are limited.

This downside was an opportunity because of the QIP. Given the prospect of raising Rs 9,000 crore which is the highest an NBFC has raised, Bajaj Finance is something where one can safely put money in for a 15% upside over the next six months.

Which is the next big one now?

These are very hard trying ideas. One has to sit through a lot of pain when they do not perform. But like I said, there is value in the eye of the beholder. Right now, if I could find some, I will definitely get back to you. I still think that Vodafone is bound to be re-rated and I gave you the reasoning for that. JP has converted 7% equity for ICICI. The NCLT hearing is November 30, which will be another positive once that is decided and it comes out of that.

But now, we cannot say because the stocks have more than doubled from where they are. I would now stick to bigger largecap names. Bajaj Finance is something I am very positive on and I would put my money in Bajaj Finance, Reliance and ICICI Bank for making a comeback. I will definitely stay in the power space. We have seen the re-rating for power transformers where Bhel has reached and go with the largest private player, Tata Power. One cannot be wrong. I can vouch for it, Rs 350 on Tata Power or a new high is coming, and it may be six months, it may be nine months, it may be three months, but that is one stock which one must own in the portfolio.

William Murphy

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