In an interview to CNBC-TV18 Phani Sekhar of Angel Broking picked five stocks investors with medium to long term time horizon should be considering now.
After posting better-than-expected Q1 earnings, he feels that Infosys has overcome the worst for now at least. “The huge rally seen in the stock is a sign of the confidence that the street has in the new leadership at Infosys,” he added.
Below is the edited transcript of his interview with CNBC-TV18:
Q: The big mover that we saw on Friday was Infosys post its numbers but at this Rs 2800 level how much more of an upside do you see for the stock?
A: Large part of the upside has been factored in a single day so while optimistic year end targets would have been close to Rs 3200 levels but in one single day you had 11 percent of that being covered. However more than the results I would tend to see this kind of huge rally in Infosys as a sign of the confidence that the street has in the new leadership at Infosys.
Since the worst seems to be firmly behind the company at least in the foreseeable future, I guess the street is bracing for new things. So despite a very cautious guidance of 300 bps decline in margin, the rally continued and you had 11 percent uptick on the stock at the closing. So it is more to do with confidence which means that going forward at least in the near term you might see levels of higher than Rs 2600 on Infosys being maintained for sometime.
Q: You have picked up Power Grid, tell us about that, what the triggers could be and is this just an intraweek or medium term call or is it for long-term investor as well?
A: It is a medium to long-term call. Utilities like Power Grid or National Thermal Power Corporation (NTPC) represent good opportunities in this chaotic atmosphere simply because you have a situation where in the power sector for the time being at least, the situation cannot worsen.
When you have solid utilities like Power Grid or NTPC where earnings have not really been impacted to the extent that they have been in many other private companies and the business model looks equally strong going forward because the entire demand supply dynamics of power sector will not really go haywire over the next four-five year time horizon. So that is where you have solid utilities, market monopolies like Power Grid which come into play and since valuations are not really demanding, investors with a longer term horizon can actually keep accumulating these stocks on every decline.
Q: What about Oil and Natural Gas Corporation (ONGC) because we saw the stock tank about 6 percent last week, in the previous week it was lower as well and apart from all the concerns with respect to what happens post the gas price hike. Now we understand that perhaps ONGC may have to bear a part of the fertilizer subsidy burden as well. How would you approach that stock?
A: ONGC is more of an opportunistic trade simply because if the market is going gung ho our fundamentals are going to improve and to that extent India is going to be a beneficiary of lower commodity prices. Generally the subsidy burden is going to come down. However it is very much possible that the government will palm off its own share on upstream companies such as ONGC.
But at the current valuations and considering the fact that gas prices are also going to be revised from April 2014, at least that is what we understand from the Oil Ministry last week, I guess there is a reasonable margin of safety in ONGC at least for another 5-7 percent assuming that the market continues its uptrend as many of the analysts believe. So there is at least near term trade in ONGC. However from a medium to long-term perspective it is always a great time to buy ONGC whenever it comes below Rs 300.
Q: You have a buy call on GIC Housing, we haven't seen that stock on the radar for quite a while but just tell me about your target price there and the triggers behind that?
A: It is a classic low ticket housing finance space, that is typically the space that is relatively unscathed by the slowdown that we are seeing in the economy. What is also important is companies like GIC Housing Finance are very active in tier II, tier IV and V kind of places, again places that are relatively immune to what is happening in the larger context.
Today if you are looking at this company, you are looking at dividend yield of almost 5-5.5 percent valuations that are very attractive at around one time adjusted book and with zero NPA. So if you are a longer term investor and not really worried about owing blue-chip index stocks then this is a very good company to hold for the longer term. And typically these kind of stories give you anywhere between 18-20 percent on a compounded basis which is very good return over longer time frame of three-five years.