Dilip Bhat, Joint MD of Prabhudas Lilladher believes that Indian economy is probably bottoming out, but will take time to return to earlier 8-9 percent growth. He expects the economy to grow at around 5 per cent for next few quarters.
However he does not see any great downside in the stock market on account of economic data. Corporate earnings of frontline companies in fourth quarter have certainly not pointed to any pick up in economic activity, Bhat observed.
He is bullish on Tata Motors despite current overhang on the stock mainly due to stellar performance of its subsidiary Jaguar Land Rover.
“We certainly would recommend this stock to be a part of the investment portfolio from a timeframe of something like 8-12 months. JLR is something which is really dictating the fortunes of the company, almost 90 percent of the profits coming from there…and probably over there the momentum still looks pretty good,” Bhat said.
Below is the verbatim transcript of his interview
Q: Tata Motors ahead of its numbers is looking quite good. Even the Tata Motors DVR has started to pick up. What is your expectation this time around? Would you buy this stock now?
A: Not withstanding the results around the corner which could lead to some kind of volatility in the stock price. But very frankly this stock really merits a good look from the investment perspective. We certainly would recommend this stock to be a part of the investment portfolio from a timeframe of something like 8-12 months. There are lots of negatives which are being talked about on this particular counter, but Jaguar Land Rover (JLR) is something which is really dictating the fortunes of the company, almost 90 percent of the profits coming from there. So I think that is what is really driving the whole thing and probably over there the momentum still looks pretty good. So I would still go for Tata Motors from the current level.
Q: Housing Development and Infrastructure (HDIL) came out with an interesting set of numbers including the fact that they have been asked to cancel the Mumbai International Airport (MIAL) project and they have already written down around Rs 400 crore in terms of an exceptional item this quarter as well. What did you think of that and HDIL's numbers overall?
A: HDIL still continues to be roiled in the controversy at the moment. I have not really had an opportunity to go through the numbers in detail, but the cancellation of Slum Rehabilitation Authority (SRA) in some way probably should impact its valuation is what my broad understanding is. I remember the time when this project was awarded there was a lot of calculation which was going around and the valuation that was being given was quite big. So I am sure that must be negative and unfortunately for this company and for the sector as such the controversy overshadows the real intrinsic value of the company. It is very difficult to really find or discover the intrinsic value of the company amidst all these things that we talk about. Of course I will go through the numbers, but all said and done HDIL is something which one can best avoid from the current levels. Maybe in the short run it can still move up, but I would still stay away.
Q: What is your key takeaway from the earnings season this time, has it made you comfortable or uncomfortable in anyway or have you not got any kind of decisive trend from this earnings season and what would your key top overweights or underweights be now?
A: It has certainly been a mixed bag among the frontlines so you have certain frontline companies which have done pretty well. The private sector banks have stood out but PSU sector banks still have a core operational problem though their asset quality may not be such an area of concern. By and large none of the frontline companies have given a clear signal that the overall economic activities have picked up. So, amidst all this some of the things that we like and that stands out one of them certainly would be Infosys. From the current level and I wouldn’t play that for one or two quarters here but over next three to four quarters it can give a reasonably 20 percent upside. Coal India is another stock which can give a very good set of returns especially after these results have been announced and considering the fact that there has been a price increase, considering the fact that they have huge cash in books is also pretty good. In the pharma space it is a mixed bag but I would still pick a controversial one like Ranbaxy which looks pretty good from the current levels and it has taken quite a hit on the chin. Another stock which looks pretty interesting andLarsen and Toubro (L&T) I would go for.
Q: We have the Gross Domestic Product (GDP) data out on Friday. It is pretty much expected to be a sub-5 percent figure in terms of consensus. Do you think that the worst is factored into the markets?
A: I think the question is that of course everybody is expecting it is going to be sub-5 percent without any doubt. But the question is, is this the bottom and then probably from here is it going to revive? My answer is maybe this is a bottom, but possibly it will hover around these levels for quite sometime, maybe a couple of quarters more. In that case the macroeconomic activities would not really show any significant optimism and by the same logic overall it would get reflected either in the order books or it would get reflected even in the overall earnings. The only good thing here is that the inflation is softening and maybe the commodity prices are coming down. So any great downside to the market seems to be capped from the economic point of view.