SENSEX NIFTY
Jul 20, 2013, 02.43 PM IST | Source: CNBC-TV18

Make most of banks' weakness: Gautam Sinha Roy advises bets

Gautam Sinha Roy, VP, equity strategy and product, Motilal Oswal Securities believes that the run on banks has been a bit overdone already and suggests to accumulate financial stocks.

This week, banking stocks were under heavy selling pressure, dragging the Bank Nifty down 6.5 percent from the previous close. However, Gautam Sinha Roy, VP, equity strategy and product, Motilal Oswal Securities believes that the run on banks has been a bit overdone already and suggests to accumulate financial stocks.

"I would look to accumulate some of these stocks probably ICICI Bank which is available at 1.5 times valuation, price to book, one year forward," he says in an interview to CNBC-TV18.

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He is bullish on L&T on the back of large order book bagged from Saudi Arabia. As an investment strategy, he is betting on Bajaj Auto and Hero MotoCorp.

Below is the edited transcript of his interview:

Q: The important takeaway according to me last week was the fact that despite the Nifty maintained its head above water the Bank Nifty was down 6.5 percent and we saw a lot of banks bleed in trade last week, names like IndusInd, ICICI, Kotak were all down about 10-12 percent. Would you use this as an opportunity to accumulate any bank?

A: Yes exactly my thoughts because we have suddenly seen reversing of trend in the private banks space specially, wherein these banks have underperformed massively in last one week especially post the Reserve Bank of India’s (RBI) curbs on liquidity. I believe that the run on the banks has been a bit overdone already and I would look to accumulate some of these stocks probably ICICI Bank one of the leading names here is available at 1.5 times valuation, price to book, one year forward.

The reason behind this is that these banks are one of the most secular growth stories that India has to offer and whenever because of market concerns you find opportunities to accumulate these banks at cheaper valuations then you should just do that and that is what is being offered to us presently. So that makes it an attractive opportunity to get into some of the private banking names from an investment perspective specially. So that is  why I would like to pick ICICI Bank as a favoured pick here.

Q: I wanted to discuss the capital goods space with you. Larsen and Toubro (L&T) comes out with its numbers on Monday and I noticed that you have chosen to buy into that stock. Tell us the rationale behind that and also on Bharat Heavy Electricals (BHEL), which tanked eight percent on Friday, why do you think that happened?

A: L&T is one stock that one would advice buying because results are there lately we have seen that analyst on the street generally is not expecting spectacular numbers from L&T to be delivered in terms of the quarterly results. But atleast on order flows front the last quarter that has just gone by has been a path breaking quarter for L&T since it bagged one of the largest orders in the Saudi Arabia region in the hydrocarbon space, which should really shore up the order book and order inflows on a year-on-year basis. It should look good and if it combines this with any positive surprise on the results front, profit and loss (P&L) front that should really eat the stock.

Valuations are also supportive and if you look at the standalone price-to-earnings (PE) that would be around 13 times ex the subsidiary valuation. So, I think there is a good chance that L&T could take more support from here. It is a bit of a contrary bet, but one that I am willing to take at this time.

As far as BHEL is concerned really it is a no-brainer that the stock in the long-term can’t really go up because of its huge concerns about its future business opportunity and growth. One of the few Nifty stocks where one can expect earnings per share (EPS) de-growth for the foreseeable future. So no point really, wondering why BHEL will fall, it will be falling and we can’t really predict till when. But it is going to be one of the weakest counters you will come across for sure.

Q: Last week we saw Bajaj Auto rise above five percent after delivering margins that were better-than-expectations because of rupee depreciation, next week we have Hero MotoCorp as well. Just your thoughts on the two wheeler sector and if you would advice anyone to put their money there?

A: The sustained upmoves in this sector would be function of demand growth coming back in a meaningful way and the market share redistribution, which has been kind of stabilising, which is something that should happen this year. So from an investment perspective probably yes, we can look at these stocks, but we don’t really expect the strong movement that we have seen this week in Bajaj could be sustained in the near-term. But from an investment perspective definitely very interesting buys both of them Bajaj Auto and Hero MotoCorp.

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