Forthcoming budget along with various measures that could be part of the 100-day agenda of Modi 2.0 is the most eagerly awaited events ahead, said Shailendra Kumar of Narnolia Financial Services
Ease of credit, infra spending and rural value chain are key themes to invest in the short to medium term, Shailendra Kumar, CIO at Narnolia Financial Services, said in an interview with Moneycontrol’s Kshitij Anand.
Q: Do you think have we hit an intermediate top or we could see a breakout above 12,103 after Budget?
A: Global financial market performance in the month of June 2019 has been mixed. While Dow Jones Index of the US made its best-ever June since 1938, the S&P 500 made best-ever June since 1955 challenging the arguments about economic recession ahead.
On the other hand, Indian indices closed in the red in June. So, basically, a mean reversion has happened last month.
Interestingly, gold too made a strong rally though generally, it trades opposite to risky asset like equities as gold is becoming more of a contra play on the dollar.
Going ahead, if the budget fails to lift the mood on the macro-economy, I think Nifty will be further tested for its resilience that it has shown lately despite tight liquidity condition and a slowing economy.
Nifty is trading close to 19.5 times FY20 earning and in that sense, 7-8 percent move up or down from the current levels would be normal.
What favours bulls though is the announcement of more stimulus from the European Central Bank (ECB) and potential US rate cuts.
Q: What are your expectations from the Finance Minister for this budget?
A: Forthcoming budget along with various measures that could be part of the 100-day agenda of Modi 2.0 is the most eagerly awaited events ahead.
The economy is passing through difficult times and after the change in stance to accommodative by the RBI, we need strong growth propelling fiscal measures.
Factor reforms like those of land and labour need immediate attention. We need a boost to agriculture and real estate. Prioritizing real estate will solve many of the issues hurting the stock market right now.
Infrastructure spending and public-private partnership need to be put in the highest gear. We need to put on dedicated industrial zones to capitalise on ongoing issues in China to our advantage. July will also see further clarity on possible US rate cuts and ECB stimuli.
Q: Any three stocks that you think are good fundamental picks ahead of the Budget.
A: Ease of credit, infra spending and rural value chain are key themes to invest in the short to medium term. We prefer LIC Housing Finance, UltraTech Cement and PNC Infra.
Tightening of liquidity is likely to ease the competitions and will improve the growth for LIC Housing Finance due to lower balance transfer cases in the core individual home loan segment.
Given the thrust of the government on affordable housing, LIC Housing Finance is well placed to cash the opportunity.
Also, the company is able to raise money from the market due to strong parentage support and AAA credit rating. It is trading at 1.3x on FY21 book value that is lower than its 10-year average.
Infrastructural spending and ‘Housing-For-All’ scheme creates strong volume growth visibility for cement companies. Ultratech Cement has posted a strong set of numbers with consolidated revenue growth of 16 percent YoY to Rs 10,905 crore and a PAT growth of 127 percent YoY to Rs 1,014 crore.
EBITDA margin has improved by 250bps. Further impetus is expected led by rural housing and low-income housing scheme like Pradhan Mantri Awaas Yojana.
The company has seven HAM projects that are financially closed and for six HAM projects, it has received the appointment date. The appointment date for remaining one HAM project is expected to be received in September.
The management expects revenue growth of 45-50 percent in FY20. PNC Infra is expected to secure Rs 7,000-8,000 crore worth of orders in FY20, which will be in the ratio of 50:50 EPC: HAM. The stock price has seen sharp rally post Q4FY19 results, but one can buy on the decline.
Q: What are your views on the recently concluded SEBI board meet?
A: SEBI's plans to tighten the pledging of shares by promoters is a welcome move from the market perspective. Pledging of shares by promoters has often been the reason for big unsystematic risk for the stock of the company and we have seen many instances of wealth erosion in a good operating company on account of promoter not managing their investment prudently.
Broadening the definition of encumbrance and mandatory disclosing the reason for pledge will help investor take a better-informed decision.
In fact, in medium to long term, these step will reduce volatility as the chances of surprises reduce for the stock.
With the new set of regulation there surely would be some outflow from liquid schemes as their return will be affected to the tune of 50-100 bps and their attractiveness versus bank deposits will decline.
But, these are good measures in the long run as with strong flows coming to mutual funds many funds were taking highly concentrated exposure and needed a course correction.
Thesis for larger flows to mutual funds in the long term remains intact as mutual funds asset as a percentage of bank deposits is still low in India.
Q: RBI report calls for tougher supervision of NBFCs. What should investors do with NBFC in their portfolio?
A: NBFCs had been a big beneficiary of easy liquidity, falling interest rate and decline in credit by PSU banks during 2013-17. Over the last 4-6 quarters, the operating environment has reversed.
The recent regulatory changes proposed by RBI though good for overall financial stability will pose further cost pressure to NBFCs.
Investors should stick to those names where parentage is strong, the company is operating in a niche segment and has technological superiority to consistently gain market share.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.