Hold ONGC, Tata Steel, RCom? Rajesh Agarwal tells way ahead

According to Agarwal, in the current market environment pharma stocks could be a good bet.

“Some of them can give surprising results not only on balance sheet or bottomline front but also on market cap front. One can have a look at some of the midcap pharma names such as Lupin , Ipca Labs which can out perform the larger names like Dr Reddys or Ranbaxy ,” he added.

Below is the edited transcript of Agarwal’s interview with CNBC-TV18. Also watch the accompanying video.

Q: Do you look at pharma stocks very carefully? Is there anything that you would put your money on considering that many of them are exporters and the rupee should be a great prop?

A: I agree that this rupee issue can be a great trigger for this stocks, but I fear that most of the companies might be having some dollar hedging and that won’t go well with them. But going by the kind of uncertainties we are facing in the market at this point of time and whole lot of negative environment, pharma can be a good bet.

Some of them can give surprising results not only on balance sheet or bottomline front but also on market cap front. One can have a look at some of the mdicap pharma names such as Lupin, Ipca Labs which can out perform the larger names like Dr Reddys or Ranbaxy. There are higher risks in midcap pharma but then there are higher returns. So, Ipca Labs or Lupin even Unichem looks better which has seen some correction today. But, after some downside from these current levels one could again buy these stocks.

Caller: I bought 200 shares of Tata Steel at Rs 430 each with a long-term horizon. Should I breakeven?

A: Yes of course. I don’t think if one is a long-term investor in a counter like Tata Steel there is much to worry.  In the short-term there maybe lot of pain because we have seen price correcting to Rs 340-350 levels and it might correct further from these levels due to market conditions. Their Q2 numbers were disappointing due to higher interest cost and foreign exchange out flows. Even in the Q3, we believe these factors are going to a play role.

But when we look at the kind of asset this company has and the kind of low costs this company produces its products, even on the valuation front it is trading at 0.5 times book value and around 5 times price to earnings. This is a good stock to play in the metal space at least in the domestic Indian market. I would suggest accumulating on down side. These kinds of falls in the market give a very good opportunity for a long-term investor to accumulate stocks like Tata Steel.

Q: What is the time horizon the investor will start making some money?

A: Two- three years is very long-term at this point of time. I am very hopeful that second half of next year around June onwards, we would see market going again in uptick and these front line stocks would perform first rather than midcaps, so I would bet on them. In the next six-nine months the investor is going to see his price coming back at least breakeven and after that profit would be there.

Caller: I have 1,000 ONGC shares ESOPs my time horizon is one year. What are the prospects for ONGC in the next couple of years?

A: This is a stock which one can hold for years in their portfolio. This is because if you at their assets, oil wells and demand supply scenario, this company is going to give good returns in times to come. In the current scenario, there are lot of issues on subsidies and other things, so these stocks are under performing. Their Q2 numbers were very good with around 60% jump in PAT, realisation was around USD 83.7, which we believe is going to be maintained considering the demand scenario situation.

Moreover, by FY13 when OVL will start performing this is going to add to the bottomline that would again be a big trigger for this stock. Even on valuation parameters, it is trading at a PE of 10 and price to book value of 2 which we consider is quite attractive considering their assets. This stock gives very good dividend and at this point of time the dividend yield is 6.5% plus. So, this is a very good stock one should definitely hold on to and if ones funds permit one can even add to this. We have a price target of Rs 325 in the next one year.

Caller: I have 200 shares of Reliance Communication bought at Rs 77 each. Shoud I hold or sell into today’s rally?

A: As far as Reliance Communication is concerned, apart from being into lot of controversies of 2G or high debt, the fact remains their mobile business has been increasing at around 15% per annum. We believe that this is going to grow for at least next 2-3 years. They have around 50,000 towers and they are trying to monetize which will be a trigger to this stock. Some time back there was news in Media that RIL is looking for a tie up with them for tower business. If something materialises on that front then that can be a big trigger for this stock.

Coming to the negative side, there is lot of 2G enquiries which are going on and they are facing problem to serve their huge debt. One can take a contrarian call if one has a high risk appetite, one can definitely add to RComm. Low risk investor should be definitely away from this counter. But high risk appetite can give you very good return if something positive materialises, either on the tower sale front or on the debt restructuring front. My personal view would be take a small exposure into the stock and be into it.