Sensex could touch Dec levels of 15,150: Angel Broking

Rajen Shah of Angel Broking says there is a lot of pain in the system due to the rumblings from the eurozone. Investors are spooked after failure in talks by Greek politicians to form a coalition government has left the country to head the election way in June.

Markets are red across the screen and in India the story is no different. Though there is a lot of value in the broader market. Shah finds many frontline companies at dirt cheap valuations and expects the market to drift further down. “We could see levels which we touched in December about 15,150 on the Sensex,” he says, urging investors adopt a wait-and-watch stance.
Below is an edited transcript of his interview. Watch the accompanying video for more.
Q: A Bank of America Merrill Lynch report says the Sensex should drift down to 15,000 again. Do you concur with that view?
A: Two weeks back I had very clearly mentioned that we are headed for levels below 16,000 and that precisely seems to be happening. The pain is still in the system. Today morning I was reading a report that Bloomberg flashed news saying that the Greeks are anxious, Greeks have gotten too panicky and over the last 10 days they have withdrawn almost USD 1 billion from the banks. So this is a very concerning report that USD 1 billion cash has been removed.
They seem to have lost faith in the banking system. If this thing accelerates and the panic spreads, I think the banks are headed for big trouble. If this spreads to countries like Spain, Ireland and Portugal, things can go out of control. The pain is there in the system and though there is a lot of value in the broader market, many frontline companies are at dirt cheap valuations, but I expect the market to drift further down. Yes, probably we could see levels which we touched in December about 15,150 on the Sensex. I would adopt a wait and watch policy at this point of time. Q: A lot of the midcap numbers haven’t been great. Do you guys track Orchid Chemicals?
A: No, I don’t track Orchid Chemicals but yes many companies are disappointed, many companies have also done pretty well actually. For example, Aditya Birla Nuvo yesterday came out with numbers. The stock was hammered down but if you see there is an exceptional item of Rs 104 crore. The company has posted decent numbers. This year also I am expecting decent growth. All the businesses are doing pretty well. The life insurance business has turned around actually. So this year it should be around Rs 100 earnings and the stock is at Rs 800 you know. So an 8 PE multiple for a Kumar Mangalam Birla Group company.
The interesting point about Aditya Birla Nuvo is that the promoters have taken 1.65 crore warrants at Rs 900. They have already put in 25% money into the company. So the market is behaving irrationally. Yes, there is a reason for it but there are a host of companies which have come out with decent numbers and where the valuations are beaten down to very decent levels. The opportunities are there but let us wait and watch. Probably we could get better levels. Q: Do you like anything from the very beaten down infrastructure pack like Lanco, GMR, GVK and IVRCL lot?
A: Many companies have come down to very decent levels. But I would certainly not allocate a significant part of my portfolio to these companies. Yes, we like HCC at this level but it’s a very long-term play. I would allocate may be about 5-7% of my portfolio into these kind of companies. I am not saying 5-7% in HCC but I had recommended HCC and Reliance also.
So, a small part of my portfolio will go into these kinds of dark horses which could turn out to be potential multi-baggers over three-four years. There are plenty of such ideas. IDFC could be looked at, at little lower levels. IDFC has come down to about Rs 113-114. Probably if it goes below Rs 100, it could certainly be looked at. But the opportunity is huge and one has to tap this opportunity. Q: Tata Motors’ numbers have slipped a bit month on month from their very scorching pace of the trajectory. Do you see any big reaction in the stock? What would you do with the stock around Rs 280-290?
A: I would certainly book profits in Tata Motors if I had though we don’t own at this point of time. I think the expectation was too much. The company had been delivering very good numbers in fact numbers beyond our expectations and that expectation was building that this would continue for ever and that’s the reason the stock rallied. But I think the stock needs to come down a little. I would certainly expect a reaction to about Rs 250-260 in the coming days. Q: You track some of these quasi real estate stories. How do you approach something like Bombay Dyeing now?
A: Companies like Bombay Dyeing, Raymond, Century, the kind of assets they own and the kind of value they command today in the market is more than the market cap of these companies. I would certainly continue to hold on to these stocks actually. No doubt the high court order was a little negative and the stock has reacted but I think there is nothing much to lose in these companies because real estate prices in Mumbai actually continue to be very high and the demand is also reasonable.
It’s not as strong as it was about a year or two back. But certainly deals are happening and the kind of assets these companies have I think the stocks should continue to be in strong hands actually. Q: There was a little bit of excitement in the fertilizer sector around some reports that the government may raise urea prices by 10%. Are you excited or getting increasingly disappointed at the pace at which things are moving in this sector?
A: Definitely disappointed at the pace at which the government is functioning but certainly the long-term prospects of the fertilizer industry is immense actually. In fact two days back, a newspaper had the headline that vegetable prices were at record highs. I continue to remain bullish on the agricultural space. We have been bullish for the past three years and we’ll continue to remain bullish for as many years. So fertilizer companies are going to do very well in the coming years.
All these things will continue but net-net I think these companies will do exceedingly well in the coming years. Some of the companies you are getting at very decent valuations. Mangalore Chemical, there are two triggers, one is the valuation. It reported Rs 6 earnings this year. It should report about Rs 6 earnings, stock is at 7 PE multiple. Probably Vijay Mallya could sell off in this company. It’s the only fertilizer company in Karnataka and the market cap is less than Rs 500 crore.
Coromandel or Zuari could take it over and Vijay Mallya would happily sell it at price of above Rs 75-80. This stock is a short 100% upside in two years. Similarly, EID Parry, it owns stake in Coromandel international. The value of its stake is more than the market cap of EID Parry and you are getting the sugar business for free. So, plenty of opportunities are there but since the market sentiment is poor these stocks may continue to languish at these levels for a while. But certainly a great opportunity lies in this sector. Q: You are a value stock picker. Are you buying public sector banks? They are all trading below book value now. Do you think the time is still not right?
A: You rightly said that there is lot of value in PSU banks but banking is a sector where I am not present at, at this point of time. Angel’s house-view is certainly bullish on Axis Bank and ICICI Bank. But as a fund manager, I like the insurance space. I think the insurance space is placed at that level where the mobile telephony business was 10 years back. This is a huge market where we are going to see very strong growth in the insurance business. Rather than owning banking stocks, I would happily buy insurance companies like may be Aditya Birla Nuvo or Max India.
You saw the kind of valuation Max got. When New York life sold its stake to Mitusi and Nippon got a stake in Reliance Life, see the price. Insurance is one space which is going to see a very strong growth over the next 10 years and these companies, Aditya Birla and Max could be really looked at very seriously. I would strongly suggest selling some of the banking stocks and owning insurance companies. On February 14, I had gifted the audience of CNBC-TV18 - Bajaj FinServ. SBI was at Rs 2,100, Bajaj FinServ was at Rs 425. We sold off SBI at 2100 and got into Bajaj FinServ at Rs 475. Bajaj is at Rs 700, it has moved up very sharply. I expect the same movement to come into Aditya Birla Nuvo in the coming months.