IDFC Securities is hopeful of a better economic scenario with the passage of crucial legislations by the government in the Parliament’s monsoon session. Nikhil Vora, managing director and head- research at IDFC Securities feels it is a good time to cherry-pick stocks with strong fundamentals now as the economy may see benefits of policies in the long-run. If foreign investors put their money in the market today, they could see a 5-10 percent appreciation in their portfolio in a year, he told CNBC-TV18.
On sectoral expectations from the market, he says that the asset quality problems for banking are close to peaking out. He is bullish on United Spirits and Pharma stocks like Dr Reddys Labs, Cipla, and Ipca Labs. In the telecom pack, he recommends investing in Bharti Airtel and Idea Cellular. For the IT sector, Infosys and other mid-tier stocks offer strong value, he says.
Also read: Why some foreign investors are buying India
Below is the edited transcript of his interview to CNBC-TV18.
Q: What is the sense you are getting at this point in time? All these tactical pullbacks apart, is the index going to settle a lot lower?
A: We have been worried for the last six months. I have been bearish, but I want to be bullish. The last six months have been extremely challenging across. The irony is that right now there seem to be two markets running parallel. One is the macro economic which just seems to get worse.
On the other hand, the policy direction, which possibly the government was missing out from in the last few years, seems to be on an overdrive. It is extremely encouraging.
This is something like a CIO who has made quite a few mediocre decisions in the recent past but suddenly has a few home-runs. That is seen in the government’s movements in recent times.
It is extremely encouraging to see management of the government and the passage of critical bills in the very recent past. This is structurally a game changer for India in general.
What the government is doing with zero participation from private sector is huge. It potentially can change the way India operates in the next five to ten years and beyond. This is the reminiscence of 1991 crisis and the way government responded to it. It seems to be acting most decisively. The benefits of the same will get witnessed over a period of time, but I am enthused by the way the recent government policy actions have been.
Q: At what point in the markets will it now become a buy call for the street? We have seen so much of the macros get priced in. The tide could turn after the Federal Reserve taper begins. Would you defer your investment call?
A: It is always slightly challenging. The variables in the markets have only increased as we move forward. A lot of the negatives in India get priced in a lot sooner than what we expect it to be. While the economic downtrend is unlikely to reverse given the paralysis in the private sector, it will take some more time before it really changes course.
If there are global investors today who are looking at India and believe that the country will stabilise in a year, they could potentially see an appreciation of 5-10 percent in their portfolio, if they start to invest today itself.
The resilience of corporate India has always proven and surprised all of us at every stage. Despite the weakening macros, a fair bit of corporate India is still fairly insulated. The banking sector is under strain.
A 10-12 percent of banking book is literally being under restructured or assets which are getting classified as NPAs, which is obscenely high. It is getting topped out somewhere. We are possibly at the top end of the reversal.
It may not happen soon. So, it is not a market which is giving you extremely clear trend, but for once you are getting opportunities which one found it difficult to identity six months back.
There are businesses which still seem to be growing, and provide lot of value. That is a mix that investors might want to look at.
Q: So, as we get to 5,100, are we reaching the bottom on the index or are you eyeing more specific sectors or stocks? If the latter is the case, which ones are you eyeing?
A: Investors tend to get slightly hallucinated by looking at index. Look at the last five years in India. India’s market cap has actually moved down from USD 1.8 trillion to less than USD 1 trillion, but the index is down only 13 percent. So, despite the index being down 13 percent from peak, the fact that the value of the market is down by 50 percent. So it is important to look at what businesses and stocks to invest in rather than just the market because markets may not really be the right trend to look at right now.
For once, you are getting opportunities in businesses which look exciting and which is what investors would really do well to bet on. For instance, there are certain names which we have liked and some names which we have started to like now.
United Spirits is a stock is potentially the next Hindustan Unilever of the liquor space; so I am still very bullish there. I would be fairly bullish on businesses which are getting consolidated so someone like Bharti Airtel, Ideal Cellular where the telecom space is getting consolidated, fairly looks exciting right now.
There are global plays as globally things look lot bitter than what we think is there right now. So lot of the technology businesses, Infosys and mid tier names could have a significant upside attached to them. Pharma businesses like Dr Reddys Laboratories, Cipla, Ipca Laboratories look fairly exciting right now. Some of the infrastructure proxies like IRB Infrastructure and PTC these are interesting names to look at as of now.
There is no trend in the market. So, if we want to still play the market, you have got to be extremely bottoms up and extremely sure about certain businesses. And some of these names provide that sort of a platform for investors to look forward to.
So the fact is that the survivors will be really the winners from here on and these are clearly the survivors of the businesses today.