Dhirendra Tiwari, Head of Research at Antique Stock Broking tells CNBC-TV18 he is unfazed by concerns of Brexit hurting the growth of Indian IT companies such as Infosys which have a presence in the UK.
Remarkable March quarter earnings recovery has helped the market sustain the the fallout of domestic and global events such as Reserve Bank of India Governor Raghuram Rajan's resignation and Brexit, according to Antique Stock Broking.
After 6-7 quarters subdued performance, there was significant earnings recovery in the fourth quarter of FY17 and we expect a 17 percent earnings growth in this fiscal year, Dhirendra Tiwari, Head of Research at Antique Stock Broking told CNBC-TV18. The brokerage expects the market to hit the 8700-8900-mark by FY17-end, he said.
Tiwari said he is unfazed by concerns of Brexit hurting the growth of Indian IT companies such as Infosys which have a presence in the UK. He said the business fundamentals of IT stocks are good and there may be opportunities to buy. The brokerage’s top pick in the IT space is Infosys.
Among other stocks, he said BPCL makes best bet in oil marketing companies space with IOCL and HPCL playing second fiddle. Tata Motors remains preferred pick in auto stocks owing to its expansion plans, he said.
Below is the verbatim transcript of Dhirendra Tiwari's interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Anuj: It has been a remarkably strong market. It has digested so many bad news over the last couple of months whether it was P-notes, whether it was Raghuram Rajan's exit, now even Brexit, do you see signs of a big bull market because the market is digesting bad news?
A: Most important factor, which you did not mention was remarkable recovery of earnings in Q4. So eventually what happens is that markets are captive, basically they will trace the earnings growth. That was one big difference after six-seven quarters of subdued earnings performance.
We had ex-financials very strong recovery earnings which is one big reason for the markets to sustain. Global factors had been an issue and we have seen in the past that they have had impact on Indian markets as well. This time around the impact has not been visible so far and that is a good thing for us at least that we are still looking at the domestic growth. So I think we are in for decent market this year.
Our overall projection is that if we are in for about 17 percent kind of earnings growth, which is our current projections and a bear case growth of about 10 percent then we should see market essentially going to 8,800-8,900 by end of March 2017. So that is our current forecast. In that case, there is a reasonable upside of course, volatility is the order of the day. So one cannot rule out that.
Sonia: I wanted to talk about the pocket that got hit because of Brexit and that is the IT space. You have exposure in many of these names like Infosys etc, do you think this is a great buying opportunity if you see a further fall in IT stocks like Infosys and TCS?
A: I feel that IT stocks are little more susceptible to risks to global growth. So whenever we see there is some sort of pressure on global growth because of euro zone or any other reason, IT stocks do tend to react negatively.
Having said that, the business fundamental of some of these IT stocks continue to be pretty strong and on the hindsight there could be some upside in profitability if there is dollar appreciation and therefore that gives some support to the valuation.
So yes, given that IT sector is more like a mature sector growing at 12-15 percent kind of a growth and more than 20 percent of growth where we are expecting in many of the pockets, there could be some sort of market performance if market rallies big time but there may be opportunities. We continue to prefer Infosys. That is the stock that we think has come out of a moderate growth to slightly higher growth trajectory and that should sustain in FY17 so that one remains our preferred pick in the overall IT space at this point in time.
Anuj: There has been a remarkable rally in oil marketing companies (OMCs), they went through correction but back to previous highs. Your top pick is Bharat Petroleum Corporation Ltd (BPCL) but any temptation to look at others as well like Hindustan Petroleum Corporation Ltd (HPCL) or Indian Oil corporation (IOC)?
A: The whole marketing space looks good. This space has seen remarkable change of fortunes in last 18 months or so starting from oil sector reforms that basically lifted the spirits and the valuations.
The second trigger which is panning out now is essentially consumption. So if you look at last seven-eight months, the consumption in oil products has been significantly strong at about 10-12 percent. So that is a very good indicator for recovery in economy as well as good for these companies.
So I think BPCL because we believe that remains the best play within the space. Having said that, we have liking for HPCL as well as IOC from the overall sector point of view BPCL is the top pick within that space.
Sonia: You also have Tata Motors as one of your top picks, what do you think the impact of the Brexit will be but do you think that because of the pound depreciation it will be a positive for Tata Motor\\'s earnings or would you be concerned about volumes getting hit because of sentiment damage?
A: The Brexit has three impacts, one is translation, one is growth and the margins. So one has to look at each company in respect of these three catalysts and these three variables.
Our overall assumption for being bullish on Tata Motor has been market expansion because of new launches that Jaguar is going to have in next one-two years. That will take care of growth predominantly and we are sure that maybe 12-15 percent kind of volume growth is something which one can still expect despite the uncertainty because of the global presence and expanding product portfolio. That is one. Margin as you said is also an angle.
So I think sentimentally yes, it is one stock which gets meaningfully impacted because of Brexit issue. However, we believe that overall the valuations are such point where one can look at a reasonable growth in next two years and continue to remain invested in stock. So remain positive, it remains our preferred pick within the auto space.
Anuj: The other two stocks that stand out in your list, Yes Bank and Muthoot Finance. We have seen huge rally in both these names, do you still find value at current prices in some of these banks, non-banking financial companies (NBFCs)?
A: Yes Bank has been in top picks for long time and if you look at what is happening in the country project financing is slow, retail financing is strong and so is working capital.
The size of Yes Bank is such sort of loans in advances at about Rs 1 lakh crore, which in the context of the system is still very small and therefore, it is possible for the bank to grow very strong growth rate of 20-30 percent even if the system doesn’t grow that much. So that is one of the main reasons that market share gain is the driver for growth in loan book. That is one.
Secondly, the bank has been maintaining a very healthy margins at about 3.5 percent and it is trading at two times price to book FY18 book value. So it is definitely one of the best performers and it has rallied a lot but I think at two times given the growth in the system, mostly expected to revert to normal and within that Yes Bank growing at maybe twice the industry growth commands maybe even more valuation, so I would assume that yes, this remains as one of the preferred picks within the banking space. We feel that there can be some upside more and our target price is Rs 1,350.