Sandeep Singhal of Emkay Global Financial Services explains to CNBC-TV18 that the Nifty awaits the earnings trigger to move from the current level of 5,850-5,950. Singal adds that the top three picks in the midcap segment are Dish TV, Exide and LIC Housing Finance.
Below is the edited transcript of the analysis on CNBC-TV18.
Q: There has been a lot of resistance at the 5,850-5,950 level in the past few trading sessions. How long do you expect this consolidation to continue and what is the next trigger that you expect for the market?
A: The close-to 500 gain in the Nifty was due to improvement in market sentimental due to positive developments in Parliament initiatives taken by the government. Now from here onwards the next trigger in my view is corporate earnings. When that would come? The market is keenly awaiting that trigger.
Q: How are you approaching the market - are you waiting for dips to buy? Do you think you can buy stocks now on improved IIP data and a few positive developments indicate some recovery is underway?
A: We are in a business of staying invested. Our objective is to outperform the index and choose stocks within large and midcaps segments which should be bought because their business performance continues to outperform market or give absolute returns and that is what we are looking at. So at any point in time we have our conviction to buy and sell stocks and that is what we are advising our clients.
Q: You have a 'buy' on Tata Motors on your list today. Have you managed to look at the Jaguar sales for November and how bullish would you be on Tata Motors? What is your target price and timeframe?
A: If you look at the four-wheeler and commercial-vehicle space, Tata Motors has a superior business mix as compared to other four-wheeler companies in India. Come what may China will keep showing momentum in sales and Tata Motors will continue to do well. It is a high beta stock and as long as investors are not in a bearish environment, this stock will always outperform the index. So this is one of our top picks as conviction ideas for the month from a fundamental point of view.
Q: What are your chosen midcap stocks?
A: Dish TV, Exide Industries and LIC Housing Finance. Dish TV is one of our top picks purely on digitisation which was implemented, by the enactment of the Bill, in the metros and we expect the revenue per user would improve and this could boost Dish TV's earnings.
Exide Industries is other midcap stock which has the highest marketshare and is a market leader, in the automobile battery segment. There the trigger is replacement demand and there will be improvement in the earnings because lead prices had gone up and fell, so the EBITDA margin of 17-18 percent fell to about 12.5-14 percent and then bottomed out.
In the next two-three quarters we will see Exide’s earnings being very superior in terms of EBITDA margins and that is why we are targeting the stock for a return of about 25-30 percent over the next six-to-nine months.
The third midcap stock on our radar is LIC Housing Finance on bookvalue multiples of around 1.5-1.6 times. Triggers for this stock are developments such as the 5.5-percent growth in GDP, the increasing demand for housing in India and the disbursements and growth in LIC Housing's books. So if it keeps augmenting its book value, this stock looks pretty good on a structural basis. With a valuation rollover from FY13 to FY14 and a bit of growth, this stock could offer good returns.
Q: You also have a 'buy' on Wockhardt. What are your target prices and how much of an upside you see on Wockhardt from current levels?
A: This stock was plagued by negative news two-and-a-half years ago and investors derated this stock because of its very high debt-to-equity ratio and they were not sure how the debt would be serviced.
On the strength of its offshore business and resilience, the structure of the business improved in and almost all the debt has been retired. So the movement of stock price from Rs 300 to Rs 700 was mostly on the deleveraging of the balance-sheet and from now onwards at Rs 2,500 it would rise purely on valuation and the kind of discount it started getting vis-à-vis largecap peers like Ranbaxy, Cipla or Lupin, it will catch up with its earnings.
Q: What is the target price because if it is at Rs 1,580, how much more of an upside do you see from current levels?
A: Our target is about Rs 2,200.