Dhirendra Tiwari of Antique Broking feels that the volatility in the market is likely to continue. Given the political uncertainty in the country and global newsflow, one can expect some more downside in the market, he said in an interview to CNBC-TV18.
After a volatile week, key Indian equities ended in red on Friday with the Nifty closing at 5553 and the Sensex falling to 18423.
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Below is the verbatim transcript of Dhirendra Tiwari’s interview on CNBC-TV18
Q: This was a debilitating week for the markets. It closed below crucial support levels, the Nifty tanked 2 percent. Do you think there is more weakness in store?
A: There could be some weakness, given that there has been political uncertainty for quite some time. One cannot predict the outcome of these events in a certain way. There is a possibility of things going up and down and volatility will continue for some time. The external environment will be more important to watch out for because if you look at the earnings, people are in consensus that fourth quarter will not be that great in terms of the earnings growth.
While for the market as a whole, the numbers can be 0-5 percent, the volume growth for the quarter, nothing unknown about that. But what happens in politics, what happens externally, globally will be important factors to watch out for and can swing markets either way. It is difficult to say but, possibly there can be some downside given that these things will continue for more time to come.
Q: Maruti stock had a huge run on Friday and brokerages have been quite bullish on Maruti, relatively in the entire auto space. Would you advice buying it at this point despite the run up that we have seen?
A: Maruti has been among our top picks since the beginning of the year. Firstly, 2013 is not the year for the sectors, there will be different approaches within different sectors. So, taking a basket call on any sector will be dangerous. At the same time, there will be opportunities in each and every sector. For example, while we are negative on the auto sector, I find good value in Maruti and the stock can give you 20-25 percent returns in next 12 months, the reason is simple.
If you look at the profitability of Maruti in the last two-three years, it has fallen by nearly 5 percent driven by mainly two factors. First, the raw material cost went up because of yen appreciation. Secondly, the royalty went up from 2.5 percent to 5.5 percent. Both these things seem to be reversing. Right now Maruti, which will give an operating profit margin of 7.5 percent, can go to 10 percent with the yen depreciation and that is a highly positive.
While the volumes may remain subdued in current calendar year, we are looking at 7-8 percent kind of growth rate, the margins can lead to very significant 35-40 percent earnings growth in FY14 for Maruti.
With some recovery in the economy, if volumes pick up in FY15, we can look at another 15-20 percent earnings growth. So, when we look at the numbers at about Rs 110-115 of earnings per share (EPS) in FY14, then going to Rs 135-140, this looks very promising. So, leave aside the short term variations. At Rs 1,400 also, this gives very good opportunity because I am talking about 9-10 times FY15 numbers. So this is an appealing set of valuation argument. It is a good stock, somebody who has a six month plus view can look into Maruti very comfortably.
Q: You spotted a very good buy for us which is Maruti, any other idea that you would have for investors?
A: Looking at the sectors, we have positive bias towards pharma, IT, media. I would try to highlight consumer monopolies like ITC, Nestle. Lupin is another stock that we like for the next few quarters. It is a strong company with close to 25 percent growth expected in FY14. We like the cable theme so Hathway is another stock that we continue to prefer.
We like some of the oil companies. BPCL can be an interesting play. It can go to Rs 450 odd levels in the response to what is happening in the oil sector particularly diesel price deregulation. We like Crompton Greaves within the industrial space because of possible jump in earnings due to restructuring. So these are some of the stocks that we have been recommending to clients and we continue to hold positive view on these.