The current market rally is likely to continue and it will push Nifty to 6,100 going ahead, says Amisha Vora of Prabhudas Lilladher. "We are looking at a broad range, 5,600-5,700 on the downside and closer to 6,200 on the upside."
Here is an edited transcript of the interview
Q: Do you think this pullback rally can extend itself into a more durable upmove, or was it just a trading rally that we saw last week?
A: No, I think that in the current circumstances, we are looking at a broad range, which is 5,600-5,700 on the downside and closer to 6,200 on the upside. So, we are somewhere in between. So, potentially this rally might sustain and take us up to 6,100.
Q: I just wanted to extend that point that you made about the range for this market perhaps extending itself to the 6,200 level. Next week, we have important macro data coming in like index of industrial production (IIP), inflation etc. Do you think any of it will be market moving, or will global market cues continue to determine our trend?
A: No, I think overall global market cues will make the final impression on our markets and flows. This is because apart from FII flows, the flows from other sources are totally constrained currently. That would remain the most important factor. However, beyond that yes, I would think that about IIP, I am not so hopeful.
The way planned expenditure has been cut during the Budget, I think January numbers will not be anything great. But I think inflation data will be little more critical to watch. If that starts soothing further, then the confidence in Reserve Bank of India (RBI) action will increase. So, I would say that data would be more important.
Q: We did see some genuine value buying in the markets last week in the heavyweight banking names, and oil and gas names as well. If you had to lap up a couple of stocks, which ones would they be?
A: We are looking at some of these stocks --like three stocks which we have added to our list of top picks are Larsen and Toubro (L&T), IDFC and Tata Motors. I am sure, last week, most of these had a slightly stronger run. But in a slightly medium-term perspective, we think that these stocks have come around to a valuation where risk-return looks pretty favourable.
Tata Motors, of course, is not riding on the domestic part, which is in pain both in terms of the commercial vehicle (CV) and car market. But we are largely bullish on the Jaguar-LandRover (JLR) part of their business, which is almost more than 90 percent in terms of topline and bottom line.
Some of the new product launches will bring a lot of increase both in volume, traction as well as improvement in EBITDA margin. So, Tata Motors we think has still been left with good amount of steam at current levels.
L&T is the other stock which we think has corrected slightly more than the markets year-to-date (YTD). From current levels, we think that the stock offers very good appreciation potential based on both the oil and gas and the hydrocarbon side of the business finding some more traction order book building.
Some more orders are coming from metros. If the promised infrastructure side comes up from the government, then, as competition has become so weak, that we think L&T will be a big beneficiary with a slightly better margin profile. So we have upgraded L&T.
The third stock that I was talking about is IDFC. We think that in these entire banking financial space because of very low credit growth, all attention is going into mortgage, and competition is becoming little strong over there reducing net interest margins (NIM). While this side of the business -- the infrastructure side, where IDFC is focusing on refinancing and they have a very good quality book at current valuations, offers a reasonable risk-return profile and a good 15-18 percent growth.
Q: Do you think anything in the midcaps deserves a mention? We saw a lot of these banking license hopefuls like Mahindra and Mahindra Financial (M&M), Larsen and Toubro Finance Holding (L&T) etc do well, followed by a lot of pharmaceutical names last week. Anything that catches your eye in the midcaps?
A: We like Petronet LNG within the space. We think that in the last couple of months, the way international LNG prices had shot up and made it a less attractive fuel as compared to others, and that has started softening. Typically, Petronet LNG has a very good correlation with the LNG prices. So, with that softening and the strong fundamentals, and their Kochi Terminals going operational, we think that this stock from current levels offers a good more than 15-18 percent kind of an upside.
The other stock we like is United Phosphorous. That has also corrected a bit in the last month’s carnage in midcaps. At around 6-6.5 times multiple and almost looking at 18-20 percent kind of a bottomline growth, we think the stock looks very attractive at current levels.