Find out: Midcaps, smallcaps that enthuses Vertex Sec

He is bullish on TTK Prestige , Repro India , Vinati Organics and, Esab India .

According to him, investors can look at Rural Electrification Corporation (REC), and Power Finance Corporation (PFC) with a long-term perspective.

Also read: Angel Broking bullish on TCS, Bajaj Auto; sees huge upside

Below is the transcript of his interview with Latha Venkatesh and Anuj Singhal of CNBC-TV18. Also watch the accompanying video.

Q: What have you made of the recent volatility that we have seen, especially yesterday’s last half an hour fiasco?

A: Last time, we had said that in the frontline cases, you will see this kind of volatility going forward also. So, maybe the correlation to the results is just an incident. But you will see the frontline index seeing this kind of volatility for quite some time going forward. We were quite enthused and we are quite enthused about the midcap and smallcap ideas that we are tracking very actively.

Q: The result season, what would you say by way of outperforming sectors or outperforming stocks in the bigcaps?

A: As far as the bigcap is concerned, probably the results won’t have as much a bearing as the prospects going forward. We have been repeatedly saying so that look at the consumer non-durable sector or maybe the durable sector, basically the consumption space which we are quite bullish on from the prospectus perspective.

Q: With respect to the midcaps where clearly there is more of a valuation gap and perhaps where outperformance is easy, if one can get the fundamentals right, what are you looking at? We have seen several failed attempts of the infrastructure space, would that still be a no-no for you?

A: From the valuation perspective, maybe it won’t be a no-no. It is a question of the sentiment. The moment the sentiment improves probably whatever you are hinting at will come out true. But otherwise what enthuses us selectively bottom-up stories. If you look at a stock like TTK Prestige, the valuation is pretty steep. It is a phenomenal story. So, it is the prospect and the sentiment which is driving the prices even in the midcap space.

Q: What is the next TTK? What are you picking up by way of stocks, which have shown such consistency and which are still showing valuation gap?

A: We had come out with a buy call on Repro just ten days ago at Rs 142. It has given a Rs 6 dividend. After that, the stock is up. The results have been fabulous, there has been a wonderful acquisition announced yesterday.

We see no worry on that counter. There is a company called Vinati Organics which we mentioned last time also. There is a huge valuation gap there. If you look at stocks, which I mentioned last time, Esab India, Grindwell Norton , Ador Fontech , look at their P/Es, look at their cash on hand, look at their book values, zero debt companies, where is the fear?

Q: What about Esab in particular? That has had quite a bit of rally since the last time we spoke, infact it hit a couple of circuits also, would you say that still the valuations are quite cheap there?

A: Absolutely. There is no fear on that stock. When you have roughly 80% in strong hands of the stock holding, you have a zero debt company, which is delivering more than 15% operating margins and more than 10% net margins. There is nothing to fear. This is when the sentiment is bad, when the investment capex cycle take-off is still being expected.

Q: There is a lot of backchat and analysis on the power financing companies, Rural Electrification Corporation (REC), Power Finance Corporation (PFC). Do you have any opinion on these, are they completely pricing in the negatives because PFC at least since January was a one way street down?

A: I think the negatives have been priced in there. They are pretty good stocks, pretty good value also there. Investors who invest in the stock markets with the long-term perspective can certainly look at the companies that you mentioned.

Q: Any disclosures you would like to make?

A: The stocks that we have mentioned maybe held by our clients and associates.