In an interview to CNBC-TV18, Nitin Jain, head- retail capital market, Edelweiss Securities gives his views on Hindustan Unilever (HUL) and Dish TV that came out with their Q3 results yesterday.
Though HUL posted poor numbers, Jain says the company has done phenomenally well for the past one-and-a-half to two years. He opines the over-owned stock will be under pressure for the next two-three months.
He says, "This disappointment is significant in our opinion atleast from next two-three months point of view. The stock can see a correction of 10-15 percent. If you look at the derivatives data, a lot of open interest got build in yesterday when the stock was falling and hence, I see the stock to be under pressure for the next two-three months."
Below is the edited transcript of Jain's interview to CNBC-TV18.
Q: Hindustan Unilever (HUL) and Dish TV both disappointed the street quite extensively in terms of stock reaction yesterday. What is your view on both of them?
A: Hindustan Unilever has done phenomenally well for last one-and-a-half to two years. It is currently in a zone where it is over-owned. In the sense, most portfolios own HUL and have been overweight on it for quite sometime. This disappointment is significant in our opinion atleast from next two-three months point of view. The stock can see a correction of 10-15 percent. If you look at the derivatives data, a lot of open interest got build in yesterday when the stock was falling and hence, I see the stock to be under pressure for the next two-three months.
The same story holds for Dish TV. It’s been a stock which has done well and over owned. The stock disappointed and it is quite likely that the stock might correct even from here to Rs 65 levels.
Q: Do you think interest rate sensitive is the story worth chasing for the next six months of 2013?
A: It is interesting, because market has already factored in quite a lot in terms of rate cut expectations. Infact, I personally think that if rate cut disappoints this RBI cycle, then we might be in for quite a rude shock, though I am not betting on it. However, a lot of it has already got factored in and hence, I would not necessarily go long these stocks at these levels. If there is a 25 bps cut or no cut, I would like to go short on these stocks from two-three month horizon but any such dip should be used to buy from a six month to a year horizon.
There are lot of stocks in the private banking space which we like a lot, stocks like IndusInd Bank and Yes Bank. They provide great opportunities. The retail non banking financial companies (NBFCs) also provide excellent opportunities from that point of view giving excellent return on equity (RoE), good growth and are trading at reasonable valuations.
Q: What is your view on the public sector undertaking (PSU) banking lot and the earnings expectations from there? Karnataka Bank comes out with numbers and that stock is down 3 percent. Do you expect asset quality issues to emerge? Net interest income (NII) has been tepid in the past couple of quarters or maybe in the last quarter particularly for a couple of these banks.
A: As we have seen, the PSU banks have been under pressure for the last three-four quarters. The key concern has been the asset quality. Though I think significant changes happening in that are unlikely, but I think the market is already again factored in a lot of that into the prices. The stocks have become reasonably cheap, and have become under-owned and at this point, the risk reward is not going to short these stocks from one year horizon.
I would like to pick up some of these stocks. Not all of them, but there definitely are two-three very high quality stocks in that segment. I would look to buy them at dips.
For example, State Bank of India (SBI), Bank of Baroda (BoB), these are two stocks which I think can do reasonably well over the next one year.
Q: Do you like telecom as a sector? Do you like any particular stock ?
A: The telecom story has mostly played out over the last eight-ten years. So, if one is looking for a serious wealth creation over the next years, I am not sure if this is a right sector to go in. From a trading point of view, a lot of these stocks are good quality stocks and they will provide opportunities to make 15-20 percent returns. Whenever there is bad news on these stocks, one can go long and once that is played out, one can get out of the stocks. However, if one asks me if I want to invest from a long-term point of view in telecom space, then I would be a little wary.
Q: Which are the decadal multibaggers in that case - digitisation, media stocks, or something else?
A: I wish I knew some of them. If I have to bet, I think media is a great sector. What is happening in this space is very exciting. Digitisation can be a big thing over the next decade if it pans out the way we are thinking it will. Some of these stocks present tremendous value for content providers if the digitisation theme plays out the way we think they will. For a safer bet, some of the stocks in the retail non-banking finance corporations (NBFCs) provide excellent opportunities. The growth does not seem to have a problem. The business models are very intact, very strong, ROEs are high and I think the opportunity it has is huge. Stock like Bajaj Finance could do well. There is also another interesting stock- Griha Finance. It has excellent management quality and focuses on low income housing.
Disclosures: Some of these stocks or all them might be owned by our clients and even by us as management.