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Motilal Oswal sees Sensex EPS at Rs 1100 in FY11
Manish Sonthalia, Fund Manager, Motilal Oswal Securities sees markets heading higher from here. “I would be more optimistic on the markets going forward, would be more comfortable at around 18,000 levels till March," he said.
Manish Sonthalia, Fund Manager, Motilal Oswal Securities sees markets heading higher from here. "I would be more optimistic on the markets going forward, would be more comfortable at around 18,000 levels till March," he said. In an interview with CNBC-TV18, Sonthalia spoke about the markets, valuations and the stocks and sectors he is betting on. Here is a verbatim transcript: Q: What is your sense, just too much strength and every dip as we go into year-end do you see higher levels? A: Yes. I think the markets are headed higher. I would be more optimistic on the markets going forward. Would be more comfortable at around 18,000 levels till March. There is a lot of carry trade that is happening. So, a lot of money is flowing into the ETFs that is primarily driving the frontline stocks higher. Obviously banking having a 20-25% weightage across indices is in the limelight. So, I think markets should be headed higher from current levels. Q: I am getting a sense that you are looking at it more as a liquidity driven rally rather than a fundamentally supportive rally - would you say that markets will cross fair valuations but it will be a liquidity party? A: There is no denying the fact that there is a liquidity party and there is a P/E expansion that is happening in the markets currently. Fundamentally things are as they were, just after the second quarter results. So, on the earnings per share (EPS) front nothing has changed. We are looking at closer to Rs 872-900 for the current year and approximately around Rs 1100 for next year. So nothing fundamentally has changed. It is all about macros; it is all about dollar, global carry trade on the dollar etc. Q: In that case what stocks will you bet on? You spoke about banks - within banks itself will it be a slightly more high beta kind of banks like private banks and outside that space what would be the ones that will benefit most? A: I think we are betting more on banks which have a comfortable valuation. So, PSU banks within a range of 1-1.5 times price to book on FY11 or private sector banks having slightly higher growth figures, something of the like of Yes Bank or an ICICI Bank where growth in net profit for the next two years are good. It would be a mix rather than betting on any particular type of a bank. But specific names in both the public and private sector banks. Q: There have been interesting dichotomies in the auto space for example Tata Motors and M&M that are gaining 3.5-4% odd and you are seeing some bit of weakness seep in into the likes of Bajaj Hindusthan and Maruti similarly in FMCG you have ITC that started to outperform and a lot of brokerages have been bullish on that counter. HUL that has been significantly under performing post its results - are there any such interesting either pair trades or any bit of a valuation catch up trade that you can spot in any major sectors from largecap stocks? A: Within the auto space, clearly Mahindra is valuation wise cheaper than maybe a Maruti. So you continue to see outperformance in Mahindra vis-à-vis a Maruti, or maybe within the two wheeler space everything is valued in the same on an FY11 basis everything is trading at 12-13 times. So, I think there is no case of outperformance for Tata Motors because we think that the stock is overvalued. But yes, the CV space is expected to grow very strongly in FY11. So, I would not be surprised if we are to see something like 20% volume growth in the CVs. We are seeing that on a sequential basis as well. Yes, there is a lot of churning happening within sectors. Talking about FMCG, ITC continues to be a better bet than HUL. If you want to see the second quarter numbers, I think HUL disappointed on both margins and volumes. ITC actually has done well on its tobacco and non tobacco businesses. So there is a lot of churning there. Q: A couple of stocks that have traditionally supported the Sensex are belaboring under their own woes. There is Bharti , even Reliance has not been able to go past it's near term resistances - what would be your best picks in the Sensex as well as your specific views on these two stocks? A: I think sector wise we are quite positive on the financial space. So banks would be clearly one of them. I think there something to bet in the real estate space as well. I think we are having a real estate conference currently and one of the key things that have come out of that conference is that large players in this space are starting to look at acquiring fresh set of landbanks at not too cheaper rates. That gives us some sense that the commercial real estate space is again warming up. So that is one sector that would be a fresh sector to look at purely from a valuation or otherwise.
Disclosure: It would be safe and fair to assume that whatever stocks we have discussed on the show me or my clients would have a direct interest in them.
