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'Another 5-8% correction still overdue, but HUL, Kotak Bank, HDFC, Nestle can reach new highs'

It should be on priority to add stocks which are beaten down with blue-chip status, visible earnings, good track record and future growth and of course clean books to be added at the present level, Mustafa Nadeem says
Aug 25, 2019 / 12:35 PM IST
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It should be on priority to add stocks which are beaten down with blue-chip status, visible earnings, good track record, future growth and of course, clean books to be added at the present level, said Mustafa Nadeem, CEO at Epicresearch in an interview to Moneycontrol's Sunil Shankar Matkar.

Q1. The market saw a bear market in 2002-2003, followed by a strong bull market. Is the market showcasing the same kind of environment now?

A: We do not think at this moment that we are in the same structure as that was seen in 2002-2003.

At that time, the rate was cut consecutively done since markets were recovering from the global Dotcom bubble. And we were in a bearish grip since our markets lost almost 50 percent in those 2-3 years. At present, we have just witnessed a 10 percent cut from the top. But yes, we are in a structural correction which is due.

Q2. Currently, insurance is a small sector with a listing of four companies, and space relatively did better than others in earnings. Do you think it could turn much bigger in the next five years?

A: Yes. There is a lot, a lot of growth potential in this sector. We have very little penetration in life as well as non-life insurance space. And going forward, we believe this is just a starting for these companies. We are looking at it as one of the most untapped spaces in the Indian financial system that can create a lot of value for investors.

Q3. Do you think the pharma sector has bottomed out with Sun Pharma delivering strong earnings in Q1?

A: We believe the cues are mixed in the pharma space. Sun Pharma may have been able to produce strong earnings but many pharma stocks are still down almost 10 percent to 18 percent. Stocks like Glenmark, Biocon, Cipla, Divis have shredded 6 percent to 14 percent in the last one month. It would be too early to call the space/sector has bottomed. We might be catching a falling knife here.

The defensive play may see some fresh money going into the pharma space but then you need to have some value in that. Sun Pharma and Dr Reddy's Labs may see some positive move due to the same.

Q4. As an investor, is it the right time to invest in the most beaten-down marquee stocks, or will you raise more cash at current levels and wait for more fall around 10,000-10,500 levels to pick your quality bets? What is your strategy, and what are your top five bets then which could turn multi-baggers in the next 2 years?

A: It should be on the priority to add the stocks which are beaten down with blue-chip status, visible earnings, good track record and future growth and of course clean books to be added at the present level. But it just cannot be the strategy to go out and accumulate at once. One should have a gradual approach like a Systematic Equity plan.

Our Strategy At present we have covered a few stocks that can see appreciation in double-digit in the next few years/long term.

1. Tata Global Beverage
2: Marico
3: DCB Bank
4: Max Financial

5: Power Grid Corp

Q5. Are you buying auto stocks like Maruti, Hero, Bajaj, etc, or do you believe it is a structural slowdown, so it is better to stay away from these stocks?

This is a Temporary slowdown in Auto stocks we believe since its transition phase and other factors that are temporary in nature. BSVI is firstly the important factor that has hurt and then higher Insurance premiums along with GST rates are something that is playing out in this space. The demand has also nosedived in the last few months if we look at the numbers.

Once there is some seasonal pick in demand that is usually seen in the 3rd quarter. So, we believe the scenario may change from that point in time and if the government does reach out and make some changes in the GST to help the automotive space.

Q6. Do you feel the market is still expensive at current levels, considering the current slowdown and weak earnings?

The broader market is very much corrected but when you look at those blue-chips in Index many of them are yet to feel the heat of a correction. Small-cap and Midcaps are available at much much lower levels while only a few select stocks in Index are showing some strength and continue to perform.

So of course wherever there is value there is a premium attached and we can see HUL, Kotak, HDFC, Nestle continues to reach new highs. At current levels market is having more downside risk to lower levels of 10,500 - 10,200 and that is another 5-8 percent the correction we think is overdue.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​
Sunil Shankar Matkar
first published: Aug 25, 2019 12:35 pm

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