Buy on dips? Go for these 4 defence and hotel stocks

Hemang Jani, Independent Market Expert, says when it comes to cherry picking some of the stocks which have corrected, some of the defence stocks like BEL, BEML provide a great opportunity; some of the hotel stocks like Lemon Tree, Indian Hotels do provide a great entry point.

What is your view on Cummins? A recent report from HSBC is saying that there is very strong growth. They have upped their target price to about Rs 3,300, saying that across domestic markets it is looking strong, but exports are bottoming out. Your thoughts on Cummins and anything else that you track within the space?

Hemang Jani: We like Cummins and the entire space and if you look at the quarterly results, this was one of the few companies that reported a good, solid set of numbers and the outlook in terms of growth also has been extremely good. So, this will be one stock that one would be very comfortable buying into even at these levels. We think that the entire growth, both from India and to some extent global markets, is going to sustain for at least about 12 to 18 months. Valuation-wise, it is not a cheap stock but given the growth trajectory, people would not mind buying into Cummins at this point of time.

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If someone wanted to play the power story or look at that segment as well, we are expecting good growth here. What would you suggest to play this energy theme, green energy or the power theme and the demand trends that we have been seeing there? How should one be playing out that strategy? What are you looking at there?

Hemang Jani: It has been a theme that has played out extremely well and given the government support for the solar panel and green energy and the EV, this story will remain in the limelight for another two or three years at least. So, within largecaps, the best bets that one can really look at are Reliance Industries, Tata Power and Adani Green. These are the names where we think that given the overall positioning that these companies have, they would stand to benefit.

Apart from that Linde, which is a midcap stock and which has a very commendable kind of story and on the green hydrogen and also given the new investment that they have made in semiconductor, could be an interesting bet to look at. There are niche plays that one can look at when it comes to this theme.

What to watch out for in the metals pack? There were times during this week that we saw a sharp run-up coming in and then again a fall in the metals pack. Anything specific that you would want to play out in the metals pack or something that you are avoiding?

Hemang Jani: Metal has seen a smart rebound in the last three days, mainly on the back of the data that came out from China. While the pricing scenario for certain metals is good, for example copper and aluminium, at the same time, for iron ore and the steel related products, the pricing is not that encouraging. But if I have to play metal theme at this point of time, I would rather go with something like a Hindalco where the pricing scenario is better, the numbers are good and the concerns that people had relating to Novelis are now almost discounted in the current price.

So, Hindalco would be one stock that we would be comfortable with. Apart from that Nalco which is a PSU stock, which has gone through its own correction, I can give a very smart pullback of about 15% to 20% in the short run.

In this entire slew of weakness and crack that we have seen within smallcaps, anything that is looking interesting to you or anything where you feel the correction is now overdone, quite a few names there NBCC, Angel One, PVR?

Hemang Jani: I think the cut across the midcap, smallcap and to some extent even largecap stocks has been quite sharp and what was surprising is that this has happened despite the global setup being so strong where the US market we have hardly seen any correction. So, this entire underperformance was at the country level and it was due to some extent because of the way the exuberance and retail participation was coming through.

When it comes to cherry picking some of the stocks which have corrected, some of the defence stocks like BEL, BEML provide a great opportunity; some of the hotel stocks like Lemon Tree, Indian Hotels do provide a great entry point.

Healthcare has also corrected 20-25% primarily because of the Supreme Court ruling. Max Health is something that we like. There are whole hosts of themes and pockets that one can look at. The only thing is that we will have to do a little bit of due diligence because we may decide on the basis of 30-40% correction, but if the stock had already run up quite a lot and even after the cut, it is not cheap, then probably it will not make too much sense. So, do some homework but it is time to accumulate these names.

That brings me to the point about PSUs, especially within defence and railways because the first signs of this selloff within the broader end of the market started with these two sectors. Do you now see value emerging here?

Hemang Jani: Yes, I think defence is something that we have talked about. I think the opportunity there is far larger. Just to give you a small example. Recently there are talks that some components of the F-21 planes are going to be manufactured in India and we all know how big that opportunity could be worldwide. There are about 4,500-5000 F-21 planes. I think across the different categories the opportunity is going to be large. We have one or two players, maybe something like BEL, HAL and a couple more. I think this is a core theme that one should surely look at.

I am not a big fan of the Railways theme. It is overhyped. So, for the time being, we would avoid that at this point of time, but PSU banks I have collected quite sharply and in Q4, some of the banks will report very solid numbers. So BOB, Canara, State Bank are the names that we are comfortable buying into.

Roy Walsh

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