Mkts headed to 14K levels over next 2 mnths: HDFC Sec

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Mkts headed to 14K levels over next 2 mnths: HDFC Sec

Talking about the fantastic round of earnings this quarter has seen, Sanju Verma of HDFC Securities discusses stocks and sectors that have out performed and underperformed.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 01/06/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Bharat Petroleum Corporation | Hero Motocorp | Hindustan Petroleum Corporation | Mahindra and Mahindra | Maruti Suzuki India |

In the medium term, operating margins will continue to be under pressure. If you look at the earnings profile of Bajaj, there was a 37% increase in raw material cost, which led to close to a 200 bps falls in operating margins. That speaks volumes of the kind of margin pressure which some of these biggies and also the smaller names are weighed down by.

However from a long-term perspective, if I were to choose one from the two-wheeler space, it would certainly have to be Bajaj Auto. This is primarily because I think they seem to have got their act right in terms of trying to consistently gain market share. And that has increased from something like 24-36% in the last two years.

Three wheelers sales account for 10% of their overall sales and the average realization is about Rs 60,000-65,000, which I think is excellent. Most importantly, the 74% stake, which Bajaj has in their joint venture with Allianz, is doing tremendously well.

We have done an analysis where we believe that the insurance arm alone is valued at something like Rs 510 per share, which means that you are getting Bajaj very cheap if you were to strip out the insurance business. Incidentally, it is growing, in terms of premiums, at more than 150% per annum.

Q: Is the worst over for the oil marketing companies? Would you buy them now, after their pull back?

A: They certainly look interesting, given that they have been bleeding all this while and they haven't done anything in terms of sheer performance. The interesting thing is that for every USD 1 reduction in the price of oil/bbl, the subsidy burden comes down to the tune of Rs 30 billion.

According to our analysis, if oil were to be in the region of USD 52/bbl, then the subsidy burden on petrol would virtually be nil, which means that one can certainly look at HPCL and BPCL .

The OPEC has clearly said that they would like oil to stay in the region of USD 60-62/bbl. So from a long-term perspective, given that oil-marketing companies are vulnerable to global oil prices and local policies, I would rather stay out. But they certainly could be bought from a short-term perspective.

Q: Any disclosures?

A: None.