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Last Updated : Jul 18, 2016 02:21 PM IST | Source: CNBC-TV18

Don't rush to buy these post-Q1 largecaps: Elara Cap

A number of large companies have posted results since the earnings season started Thursday last week.


A number of large companies have posted results since the earnings season started Thursday last week.

Discussing the outlook for such stocks, Harendra Kumar, MD and Head - Institutional Equities, Elara Capital, said he would continue to buy Infosys at lower levels. "Valuations continue to remain comfortable," he said.

Reliance Industries (disclosure: the company owns Network18, which publishes moneycontrol.com), also posted a robust set of numbers but Kumar said its profits were powered by inventory gains and product regime and that the stock was fairly valued. "It may see immediate buying but I don't see much upside," he said.

Investors should continue to hold private bank shares, as they will likely post decent returns over a period of 18-20 months, according to Kumar.

Below is the verbatim transcript of Harendra Kumar’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.


Sonia: Top of mind will be Reliance Industries post a good set of numbers but before that I want to ask you your view on Infosys. What is a good buy price now for people who are still confident about the management’s capabilities to take the business forward despite industry volatility?


A: The valuations are a big comfort at this given point of time, so I think Infosys continue to remain a buy on declines at this given point of time. We saw some amount of optimism in the platform business which exactly where the strategic initiatives are moving up and where the future margin trajectory will rely on. So, my guess is closer to Rs 1,000. I think the buyers will return to Infosys for a good 20 percent upsides from here on.

Close

Latha: The result season has started as a bit of shocker with the IT companies. Generally are you a buyer in the IT space at all or would you wait for much lower levels before you buy?


A: If you look at it, the defensive as a proposition has actually taken a backseat over the last six months. The beta rally has been much more significant, so if you ask me the investor focus on defensives, it has actually waned. So, Infosys or a Sun Pharmaceutical Industries driving the market higher is not such a big variable at this given point of time. So, they continue to be favourites for foreign institutional investors who are looking at closer to 15 percent annualised returns. So, that is where the trade is and there is no big delta out there. So, the real money is made outside the defensives, so yes they will come into buy at around Rs 1,000 for good 15 percent upsides.


Latha: Will your trading desk churn now? Will you all get out of more IT stocks even at current levels?


A: I wouldn’t say they would get out because Tata Consultancy Services (TCS) numbers were pretty okay and people who would like to read Infosys as one-off quarter and still wait for two to three quarters for their strategic initiatives to take off. So they will always form a large part of your portfolio. So, they will find buying support at lower levels because there is buyer at some levels all the time. So, my guess is that around Rs 1,000 the valuations look very reasonable and people will start to get in around that time again. So, fresh sell-offs from those prices points, I would not anticipate.

Sonia: What are your views on Reliance Industries? It has been one of the biggest underperformers over the last current years. Do you think these earnings that they released on Friday could lead to a re-rating of the stock?


A: We have a sell on this stock for approximately three to four quarters and we do not see the reasons on the macro level to change any of that. The Singapore gross refining margins (GRMs) have been subdued. The surprise in this quarter numbers is largely because of inventory gains and the product hedging which are potentially one-off. One can’t put an assumption to that number on a quarter-on-quarter (QoQ) basis plus a huge capex on telecom continuous. However, in our view the stock is fairly valued. You could see some buying coming in because of the numbers on Friday but that would potentially mean that it is a sell on stock rises. We don’t see big upsides from Reliance at given level.


Latha: The other standout performers in recent weeks have been some of the public sector banks. Is there trading juice, investment ideas anything at all in this space?


A: Banking will be the potential outperformer in the rally over the next 18 to 20 months. The question that people are talking about is whether private banks will continue to go up form here. The big theory is that while 70 percent of the consolidated market capitalisation of the BANKEX is held by HDFC Bank. It's market share in mere 4.5-5 percent. So scope for HDFC Bank to increases its market share from here on is still humongous. So, people are expecting that the market share gains of private banks over public sector undertaking (PSUs) will continue from here on.


The other story that is developing is clearly the restructurings have come off dramatically and the collections of the PSU banks are also on the high. So, one would wait for the non performing assets (NPA) cycle to slowdown a little bit. So, my guess is there are no big sells at this given point of time in BANKEX. I think you will be well-off holding on to the stocks that you own. There could be volatility but over the next 18 months you will end up making more money than dome of the other sectors in the BANKEX.

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Sonia: The other pocket that has done very well so far this earning season is the non banking financial companies (NBFCs) space. Can Fin Homes reported profit of 55 percent; LIC Housing Finance had a very stable core business. Would you buy any of these stocks now or add into them incrementally?


A: Adding at this given prices is a little risky, I think the risk reward trade is getting a little on the riskier side at this given point. However, corollary to that you could probably potentially look at some real estate companies. So, the pay commission payouts as well as potential reduction interest rates over the next one year will have a big real impact on real estate stocks. So, the housing companies are value but the real estate stocks are trading at a big discount. So, that is where a trade could be made over the next 12 months.


We did speak about it on your channel and after that the BSE Realty Index is up 40 percent from that point. Some of the quality stocks are still trading cheap. That is where one could look to invest rather than housing finance companies.


Latha: The gush of liquidity is coming, I guess the frontline stocks are well discovered and discounted what is your set of midcap picks?


A: In midcap picks as well we have a sectoral bias. We like the midcap cement space and fundamentally HeidelbergCement India and Prism Cement. They are potential multi baggers even from these levels. The story of central India is panning out very well and I think with utilisation in margin improvement the stocks could re-rate dramatically.


Prism per se should have reasonably better quarter this season. So, that could outperform some of the other stocks in this space. Of course we have the hotel stocks that we spoke about, so Indian Hotels Company is on its course we have discussed that multiple times. However, I think the bouquet just about expands a little bit out here to potentially Taj GVK Hotels & Resorts which is micro market and it tends to be doing very well. So, this is one of the other companies that we are expanding in this space that we cover.


Real estate, you will have multiple names there which is Brigade Enterprises, Prestige Estates Projects and Oberoi Realty. The stock will do very well in the next calendar year, so there are potential areas where valuations are reasonably okay and the macro seems to be turning.


In the tech space we have one company called Cyient. They reported good numbers in this quarter. The structural initiatives are playing out. It will be slow to move buy but closer to Q2-Q3 the stock should start getting interest from investors.


Latha: Auto ancillary space was the big flying midcap index in the early part of 2015. Is there any juice left in that space now?

A: Auto ancillary space is pretty much secular to the original equipment manufacturer (OEM) story. I think the big story is out in the tyre space at this given point of time. So, there is some amount of valuation comfort out there as well. Otherwise more or less the stocks pretty much are identified, so may be some in the tyre space where you could look for gains.

First Published on Jul 18, 2016 09:16 am
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