Bhasin’s top 6 midcap picks in run-up to election

Sanjiv Bhasin, Director, IIFL Securities, says among the midcaps he is very bullish on the PSU pack, particularly the power lenders. We have had a buy on REC, PFC from when they turned three-four times.Those are two of the top names. IOC is the third name while Ashok Leyland is another name where we are very positive and is the fourth pick. Ramco Cement is a stock which everyone must own in their portfolio, 2.3 times price to book, trading at the lowest enterprise value to EBITDA, and prices in the south are now headed northwards. Another one that can be added is Federal Bank which can be an outperformer.

We have brokerage notes coming on Avenue Supermarts today. CLSA is initiating a buy, target price of Rs 5,100. In the last couple of quarters we have seen that retail has not been doing well. Avenue Supermarts was not one of those outperformers. But now, is the retail story overall changing? What is your view on Avenue Supermarts or a Trent?

Sanjiv Bhasin: What we are playing now is the pick-up in rural incomes. Avenue Supermarts has got more in tier II, tier III cities and that is a very big positive. We have a buy on this stock closer to Rs 37, 38 when it was languishing. But we continue to be overweight on Jio Retail and Trent is something we have booked profit on. We think that the valuation comfort for Jio Retail and Avenue can be very strong in the coming months or quarters.

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Simply put, if two-wheeler and tractor sales are picking up, then rural incomes are bound to see good in the consumer staples and in that, Avenue Supermarts is benefiting from that on volume front and on growth through more branch outlets. After a long time of languishing, Avenue Supermarts is now set to be a better outperformer in the near term. We also have a buy on some of the consumer staple stocks like Bata, Patanjali and Godrej Consumer which we think can be outperformers.

It is interesting that now the JSW-MG Motor joint venture is talking about recreating a Maruti moment. They are looking at selling around a million electric vehicles by 2030. What is the view on this really shaking up the already fairly crowded auto space? How are you looking at new trends with EV, new launches, etc?

Sanjiv Bhasin: Firstly, Maruti has been my top pick and is one of the top stocks with Mahindra in our portfolio and yesterday it hit all-time highs. Not Rs 12,000, we are looking at Rs 13,500 coming from Maruti, given the way it has shaped up and its hybrid is doing extremely well. In India all three will exist, that is ICE, EVs and the hybrid model. I think Maruti, MG and Toyota are now opting more for the hybrid model simply because in EVs, the battery is going to be a huge cost once every five years.

But we think that this auto market is really being taken on a supercharger, given that rural incomes are picking up and now with the Fed talking of three rate cuts, lower bond yield, lower inflation, I think autos are going to find fancy for some more time. We think Maruti and as a dark horse Ashok Leyland is one of our top picks which has forayed very strongly into the bus market on the EV side.

In terms of PB Fintech, PolicyBazaar got a nod for the payment aggregator subsidy and that is going to be a PB Pay Private Limited, a payment aggregator business. What are your thoughts on PB Fintech? Is there something you are specifically looking at in this stock or any other company in this new-age tech there?

Sanjiv Bhasin: We have had a buy on this stock, we have discussed it many times on your show from that 700 level and it has been a relative outperformer. Insurance is in a very sweet spot and the way PB Fintech has converted its business model, it seems to be a winner for a long time. But the stock has been on a supercharger, it has hit all-time highs.

Take a contrarian view on Paytm also now, like once the dust settles, the app is doing extremely well, they are talking of new business which is roaring above the Rs 5 lakh mark but previously they had been little bit subject to discontinuing their below Rs 50,000 business. In the Rs 5 lakh rupee business which they are now coming back with, they have got the approval for being a third-party payment gateway which is again a positive.

All the negatives are priced in there. PB Fintech is definitely an outperformer, but buy on lower levels and Paytm could be a dark horse. We own that stock, it has been a relatively weak performer, but we think that here there is enough room of comfort now at least on the price and the earnings going forward will dictate the trend.

How are you reading into this underperformance of the broader end of the market? Would there be some specifics? If you had to nail it down to say the top five midcaps that would maybe remain unscathed even in times of volatility run up to the election, what would they be?

Sanjiv Bhasin: Firstly, we have had enough of a correction or enough of a short-term consolidation and purely in that consolidation, the index has stood its ground, which is evident that the money which was seeing froth on the midcaps has now shifted there. We are very bullish on the PSU pack, particularly the power lenders. We have had a buy on REC, PFC from when they turned three-four times.REC, PFC continue to be in a very sweet spot with Rs 1 lakh crore now being spent on solar panels. In solar energy, in wind energy, you name the business, REC and PFC are gaining traction. There is the best recovery from state electricity boards. So, those are two of the top names.

IOC will stand out. Crude has started to correct. IOC distillates margins and refining margins will be at the highest ever in the history. Already the last quarterly results were a standout. IOC would be the third name over there.

Ashok Leyland is another name where we are very positive. RBL Bank where Mahindras have taken a 4% stake, not just as a passive investor, they are the largest shareholders. RBL Bank’s NIMs and net interest margins are going to be very strong.

Lastly, Ramco. Ramco Cement is a stock which everyone must own in their portfolio, 2.3 time price to book, trading at the lowest enterprise value to EBITDA, and prices in the south are now headed northwards. I think that closer to Rs 800, this stock is a must have in your portfolio. This is a summary of some of the midcaps and if you can add one, Federal Bank. Federal Bank from here can be an outperformer. It can even hit new highs, given that the liability franchise is doing extremely well and they have garnered more share in the gold loan.

Roy Walsh

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