Bata trading cheap in midcap cluster, buy: Motilal Oswal

Indian indices are seen consolidating further in absence of any clear direction and quantitative easing roll back. Depreciation in rupee will also continue to define the trend in future, said Gautam Sinha Roy of Motilal Oswal Securities in an interview with CNBC-TV18.

The brokerage house is bullish on Bata India,due to likelihood of strong earnings and dividend growth. The stock is currently trading at a discount to the broader market, which signals possible upside in the stock, Roy pointed. Also read: Bata's new plans: A step in right direction, says Motilal
On higher gold imports and its impact on current account deficit, Roy said the yellow metal has given excellent returns to Indian investors; but “if gold prices continue to keep coming down, investors' belief in it as a good investment will probably go away". Below is the verbatim transcript of the interview Q: This is the big debate in the market whether we are headed for a slide from here on or will we just enter into a consolidation phase. After putting all the triggers together what is your sense of which way the market could head?
A: As of now we are looking at a consolidation only because we don’t have a clear directional call yet. The cues don’t support any particular call in that sense. However, couple of things which are quite interesting is the kind of premium that the supposedly high quality stocks in Nifty and Sensex are commanding now, are quite high and continues to increase. The second interesting part is the quantitative easing (QE) rollback or QE scale down rather has become a very important talk globally and especially for countries which have a negative current account deficit (CAD). For countries like India which have high current account deficits this could be a big concern. The impact on the rupee is also visible already. So, these two factors are kind of new trends for the Indian market now. So, we will have to daily see where it goes from here and a lot will be determined by global factors rather than just local factors going forward both from a macro stability perspective as well as from market performance perspective. Q: The Motilal House has come out with a report on Bata India and that is one of the favourite stocks in terms of the broader markets today. Can you just take us through your call on Bata and what resulted in the 20 percent upside that you'll are expecting from current levels?
A: Bata is one of the stocks where we have seen strong growth being one of the favourite consumer discretionary stocks in India. As well as the fact that this is in favour, especially the high quality MNC names within the sector. Valuation wise also we are seeing some sort of discount to the broader sector in general which is where the upside specifically comes from. However, it is also a story about under penetration and likelihood of strong earnings as well as dividend growth for a sustained period of time. Not only Bata but we expect this from other such consumer discretionary companies where penetration levels continue to be low. Q: What would your opinion be with regards to the gold import possibly being curbed going forward by the RBI? What are your thoughts with regards to the Current Account Deficit (CAD)?
A: From a CAD this is another worrying factor that gold imports have been very high and they have been sticky for two consecutive months. So somewhere the government and the RBI have to step in and try to curb in whatever fashion they can. That is quite well understood. The other part is why this demand continues to be so sticky. I guess as we were discussing earlier too that gold and real estate have been two asset classes which have really done well for Indian investors, especially in the last five years during the recession era. We would say that if gold prices continue to keep coming down, at some point investors' belief in gold as a good investment will probably go away. I do not know at what point that will happen, but if there is another sharp fall in gold prices then the demand will definitely take a knock and that is what should be the next development as far as gold is concerned. In terms of stock impact, definitely the gold retailers are running a risk of volume slowdown because of that factor, but coupled with that probably they would make up partially through higher margins, because if gold prices are coming down they would probably be able to get higher mark-ups on their costs. So they have some mechanism for compensating lower volumes and lower prices, but definitely not a big positive for them from a near-term point of view. Q: What would your opinion be on the new bank license clarifications that came out yesterday, what did you make of it and which are the stocks that you would be possibly bullish on from current levels?
A: Based on the guidelines and clarifications that we have seen we continue to see a strong chance for a few of the corporate houses sponsored non banking financial companies (NBFCs) that are there including Mahindra and Mahindra (M&M), Tata Capital, L&T Finance. On the PSU side probably a Power Finance Corporation (PFC) or a Rural Electrification Corporation (REC) those are the kind of names which we believe have a good chance of getting the bank licenses. However, it will be a long run process so it is not very near term trigger but when it does happen it is obviously a big positive for the ones that do get the licenses. So, probably a basket of these stocks should be able to approach but you have to hold on to it to get meaningful benefits out of this.