BHEL a good quality stock

CNBC-TV18’s Executive Editor, Udayan Mukherjee – Somebody sold BHEL yesterday, offloaded large chunk of stock. Lot of reasons followed but I don’t think the reasons led the fall down, it was just demand supply mismatch. A lot of stock suddenly came into the market, may be one institutional player sold out, we keep hearing names but we don’t know, so we won’t say. But there have been 3-4 downgrades in BHEL over the last 1-1.5 months from influential brokerages and price target cuts.

I think people are a bit concerned about what happened in Q3, results were not good for BHEL and they are concerned that when they will come out with their provisional numbers later this week, there might be some what’s on the margin fronts because firstly of the raw material pressures and secondly metal prices have gone up significantly, and pay commission salary hikes. Legitimate fears too may be that margins will not be same as BHEL as they have enjoyed over the last couple of years and for which the stock is getting a mild derating. It’s not a cheap stock. It has fallen from Rs 2,900 to Rs 1,900 but even so it’s trading at Rs 22 times next years earnings and it is not the cheapest stock in the market, which is trading at 15 times. So I think it can lose another 10-15% if somebody is standing there to sell large blocks of stock without looking ridiculously cheaper but it’s a good quality stock probably there are concerns out there.

Axis Bank has corrected 45% from its peak Rs 1,300 to Rs 720, trades now at only 2.7 times book that’s a big come off from 4.5 times book it was trading at. Can it fall to 2.5 times book? That is another 10% which is quite possible in this kind of a market. But around that benchmark levels of 2.5 times price to book, you ought to be looking at some of these good quality private sector banks like Axis and HDFC Bank. So some people would be sniffing an opportunity out there, if the stock plunges below Rs 700, which is entirely possible in this kind of a market. But it is good to keep in perspective that valuations have adjusted quite significantly in Axis Bank.