Which stocks has Religare Cap picked for its midcap basket?

592 Investors following Pantaloon Ind. Share this News with them.

0

Like this story, share it with millions of investors on M3

Which stocks has Religare Cap picked for its midcap basket?

The midcap space has underperformed the largecaps for over a year. However, Religare Capital Markets' Manoj Singhla finds midcaps are far more attractive than their larger peers.

Post your opinion here

 

0

Tweet

Share on Tumblr

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 BSE | NSE 01/01/70 Are Mutual Funds betting on ? Other Stocks in this news Bata India | Arvind | Titan Industries | Akzo Nobel India | Dish TV | Bharat Electronics | IRB Infrastructure Developers | Union Bank of India | Yes Bank | SpiceJet | Jet Airways | Exide Industries | Amara Raja Batteries | Redington (India) | Infosys |

The midcap space has underperformed the largecaps for over a year. However, Religare Capital Markets' Manoj Singhla finds midcaps are far more attractive than their larger peers. Many midcap companies have delivered strong results in the last six to nine months. With the potential that he finds in the midcap sector, he foresees a higher return for investors.

"There are a lot of companies out here which if people are willing to buy and own from a one to two year perspective, the returns would be far higher than what you can make in largecaps," says Singhla.

Tirthankar Patnaik of Religare Capital Markets says their strategy on largecaps for this year has been that of consumption led growth with a lateral pickup in investment probably led by the government as the interest rates peak out. Among midcaps, Religare Cap's biggest overweight is in the consumer durables space. "We have 25% in the consumption space, we have 20% in banking and financials and another 20% in capital goods," says Patnaik.

He further adds, "We have stocks like Pantaloon , Bata , Arvind , Titan , all of which are essentially a play on what is happening on consumption patterns and urban behaviour patterns in the last couple of years which we expect to continue for the next five-10 years."

Below is a verbatim transcript of their exclusive interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. For complete details watch the accompanying videos.

Q: Give us the macro view for why you like midcaps? Is it because of more compelling valuations or the relative underperformance of the space over the last one year or so?

Singla: Actually, it's a combination of both because midcaps have definitely underperformed the largecaps. A lot of the midcaps are looking a lot more attractive than largecaps. A lot of these companies have delivered pretty good numbers in the last six to nine months. So we continue to see good financial performance from a lot of midcaps but the stocks have obviously not moved because of macro concerns.

We think there is a lot of value in the midcap sector. The other thing we find that to capture the value being created in the Indian economy, you have to go to a lot of midcaps because the largecaps offer you very limited opportunities. There are only a handful of largecaps that one can own. We think that a lot of companies out here which if people are willing to buy and own from a one to two year perspective, the returns would be far higher than what you can make in largecaps.

Q: On the market because the midcaps performance will to a great degree be married in with what the market does over the next couple of months. What is it that you see in terms of a headline performance for the market?

Singla: What we are seeing is that the market will probably stay in a trading range at least for the next one to two months. But in the second half of this calendar year, we expect the market to do very well. We are actually positive on the Indian market and the benchmark indices. We think one can make 15% to 20% return on the Nifty and the Sensex in the second half of this year. So we are positive on the market and we think midcaps can deliver even higher returns than the largecaps.

Q: How do you go about constructing a midcap portfolio? Do you have a sectoral kind of bias or is it essentially bottom-up and you don't look at themes as such to ride out this midcap portfolio?

Patnaik: Our strategy for this year has been that of consumption led growth with a lateral pickup in investment probably led by the government as the interest rates peak out. That essentially has been how we have defined our largecap portfolio. For the midcap portfolio the sector choice is there but a much more bottom up stock picking is also happening.

So between consumption, banks and selected pockets in capital goods where we have confidence, that makes up almost 65% of our portfolio. So we have 25% in the consumption space, we have 20% in banking and financials and we have another 20% in capital goods.

Q: You have the biggest overweight on consumer durables in the midcap space. Why are you backing this theme and what kind of individual names have you picked up?

Patnaik: Consumption has been the main steer of the Indian economy, especially, over the last couple of years. Even with the monetary tightening happening since the beginning of January last year, consumption growth is still coming in at roughly 8% on a YoY basis. The aggregate demand, not just from top down numbers but also a couple of surveys that we did in the rural side last year and again in the urban side this year, have shown a very strong aggregate demand on consumption.

That essentially forms our benchmark for why we are essentially very positive on consumption. Given, that there is a large part of the consumption space which is not essentially playable in India, I am just referring to items like white goods which are more foreign in nature. So whatever the remainder is in terms of the consumption basket is lapped up by the market. To that extent, we are very positive on consumption durables in this space. So our 25% weightage in the midcap portfolio essentially reflects that.

We have stocks like Titan, Arvind - all of which are essentially a play on what is happening with consumption patterns and what's happening with urban behavior patterns in India over the last couple of years. These are trends which we expect to see going on for the next five-10 years or so. The organized sector growth rates are roughly 1.5-2 times which is what is seen in the unorganized space which is why we have a very high weightage in the midcap portfolio on consumption.

Q: Bata is a stock that's been very active. What is it that you see in Bata that you would like and what kind of price target do you have on that stock?

Patnaik: I am not going to go into details on specific stocks but what we see in Bata is a very strong growth rate coming in the next two-three quarters. Going from Bata, if you look at say the paint space - we have AkzoNobel where even though it's the second performer in the paint space, the growth rate and the market multiples for the stock are very much available for in that space.

So we like AkzoNobel , we like Bata, we like Arvind where again 55% of growth now is coming from the domestic sector. So it is not just a play on the domestic story but also on the organized retail part.

Find out their specific stock picks in the midcap space on the next page...