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Last Updated : Oct 06, 2015 04:35 PM IST | Source: CNBC-TV18

Convinced on PSU banks; see new Nifty peak by Jan: Quantum

Sanjay Dutt of Quantum Securities says he is a selective buyer in this market, and is bullish on sectors like consumer durables and automobiles. He advises investors to avoid overowned stocks and recommends sticking with sector leaders


Sanjay Dutt of Quantum Securities is convinced about PSU bank stocks and sees them benefitting from the measures announced by the government recently.
In an interview with CNBC-TV18, he says the market will be focussing more on local events in the short term, unless emerging markets as a whole go into a tailspin.

Dutt feels India is the best placed among emerging markets, and this, along with more reforms by the government will lift the market to new highs in the next three months.

Dutt says he is a selective buyer in this market, and is bullish on sectors like consumer durables and automobiles. He advises investors to avoid overowned stocks and recommends sticking with sector leaders.

He finds select large cap capital goods shares attractive after the recent correction, and says will buy metal stocks once the sector is out of the stress it is currently in.

He says SBI looks attractive at current levels.

Below is the verbatim transcript of Sanjay Dutt’s interview with Latha Venkatesh & Sonia Shenoy on.


Latha: You were one of the persons you have been bullish on public sector undertaking (PSU) banking stocks and we have since seen some improvements or at least some concrete steps taken by the government in terms of higher capital expenditure (CAPEX) spending, plan spending. Will you pursue with your PSU bank bet. I am asking you because today most of the private banks are in the red and even some of the better-off public sector banks like Bank of Baroda (BoB) are seeing profit taking?


A: I have no doubt, in fact I have complete conviction on the PSU banking plays. Like I have always maintained and my calls have mostly been a little longer duration calls so I don’t worry about the random movements or 15 days or months or may be a day or two. I continue to maintain that over the next year or two the financial services sector would give huge returns. There is a massive opportunity in here and the fact that the Reserve Bank of India (RBI) Governor has now clearly signalled an accommodative stance with the rate cut.

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The PSU banks would be big beneficiaries of this plus all the steps that are being taken by the government to address whether it is the State Electricity Board (SEB) issue, dues, whether it is the banking sector non-performing assets (NPAs) to various commodity sector companies, all these are actually going to benefit the public sector banks much more than the private sector banks. The valuations are not really reflecting that positive outcome in the next 6-12 months ahead.


Sonia: What about the upside for the market as a whole because there seems to be no global positive news flow that can actually take the markets higher. In all likelihood we could get a federal rate hike, then December on the early part of 2016, then we will start worrying about the impact on emerging markets again, so what do you think could be the upside of the markets now, say, for the next six months?


A: If you look back and see over the last two days, we have gone up, in fact yesterday we have gone up only because the entire emerging market basket along with the currencies across the world corrected and bounced back from the aggressive selling they had seen. Markets like Russia etc were also up 3 percent odd and we were up 2 percent and similarly Singapore was up 2 percent.


However, we were up yesterday only and mainly because of the currency as well as the emerging market flows that we saw yesterday and the emerging market correction that we saw yesterday. I think the Fed part of it has been discussed ad nauseam, so I don’t worry about that as much, whether we get that in December or we get that in January. It's more or less in the price; in fact I would be more than happy if the event gets done with. But I would start to now look at local events as far as India is concerned mainly starting from what the Reserve Bank of India Governor signalled, what the government is now aggressively getting into in terms of the reforms and in terms of the key stuff that had been pending for a while. Bihar elections will be out of the way now, more or less, so I am going to look at the next four months leading up to the budget and a lot of policy action in India, more than what’s going to happen overseas. Until and unless of course the emerging markets go into a tailspin again, we will not be able to standout but otherwise the outlook for the Indian market looks much better than any other market in the world.


Latha: When you see an 8,000 to 8,100 on the screen, is your instinct buy or to sell because you clearly were saying that 7,900-7,800 are support levels. We did see lower levels but what is the call above 8,000? Would you want to buy now or would you think that, no, I will get better levels?


A: I continue to maintain what I was on the show last time. If I recollect I think Andrew Holland was there and we both maintained a very optimistic target. In fact he was talking about 10,000 Nifty in this year as calendar year. I continue to maintain that we will see new highs over the next three months in the Nifty.


Therefore, which answers your question that at 8,100 am I buyer or not? I am definitely a buyer; I would look to buy selectively. I have no doubt about the fact that the combination of global factors along with aggressive reform process and government actions would take us to new highs in the next three months.


Sonia: Let me ask you about one pocket which has a lot of the beaten down name. So, whether it is Tata Motors, Motherson Sumi Systems or even some of these metal names like Hindalco Industries, Tata Steel, we notice some amount of buying action at lower levels and so between these two pockets which ones have higher risk reward now?


A: We need to really get off a many stocks of our radar now which tend to be over owned, over covered and talked beyond the tension that is required and one of them in my opinion is Motherson Sumi. There is a huge list of stocks to buy there, so we don’t need to get into the stocks which are liquid because otherwise investors totally go in the wrong direction and they become traders more than investors.


I can make a list of 50 stocks to look at other than Motherson Sumi. Of course this is no judgement on Motherson Sumi is a good stock or a bad stock, but my view is that investors need to get a larger universe, there are lots of opportunities across various sectors to look at now. We need to keep in mind that irrespective of what the monsoon has been, the rural consumers is relatively okay, undamaged, in fact the urban consumer is at a very good space right now. We have got the Pay Commission impact that is going to hit us in the next few months. We have got the festival season coming up so all these factors are going to play on many stocks other than the once we just keep grabbing the headlines for whatever reasons. So, we need to make our list across sectors and just buy and leave them for a year or two and don’t look at them on a daily basis. 


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Latha: For example what - it's a theme which other people keep speaking to us about, the urban consumption themes as well as the fact that it will get a leg up after the 7th Finance Commission’s money is out there. What would you play? Would it be automobile stocks or would it be something else? Which would that be?


A: I would play automobile, I would play infra plays because as soon as the banks books get sorted out in terms of the non performing assets (NPAs) etc, the electricity board dues get resolved, the banks would have more leeway, the cleaning up at banks is already going on. I would play consumer durables, companies which have survived this onslaught, which have less debt on them, selectively automobile, no doubt about it. So, there are a huge number of plays that one can look at. There are a lot of other consumer plays; there are a lot of mid tier pharmaceutical plays which don’t necessarily have to depend on the news flow from US Food and Drug Administration (FDA). So, there is a huge basket across sectors which will get impacted by the extra money that’s going to come into the system in the hand of the consumer and of course there will be a lot of restructuring plays which one would be able to make money out of once the balance sheet sorting out process gets away, some steel companies maybe in there, Tata Motors is another one which is sorting out things now.


I think it's an unending list one can sit down but the important issue is that an investor needs to do its homework and not actually spend time on television from 9 to 4 o’clock and worrying about what’s up today, what’s down today, whether Latha talking about public sector undertaking (PSU’s) banks or Latha is worried about the 50 basis points cut and the market hasn’t gone up by 100 points. However, the point is, built an investor portfolio and get down to it. If you are a trader then you can worry about all those things, but that’s not where I am coming from.


Sonia: If retail investors and traders stop watching televisions then you are taking away our bread and butter away, so we hope otherwise, we hope they continue to watch our channel.


A: No, that’s not true. There are many wiser faces there, Latha with no offence to you, like I know Varinder, Shereen and Menaka, who do a phenomenal amount of work and come up with real themes, which will actually evolve and become those 5x and 10x because they are able to gauge them. Of course, no one can replace Latha when it come to banking sector and Reserve Bank of India (RBI) watch, I think you are the best in the country maybe probably one of the bets in Asia but what I am trying to get at is that investors need to really understand is that they need to be investors and not be traders. We all get into this morning-evening process and we lose opportunity in this whole deal.


Sonia: So let us talk about one opportunity then - what the government is really doing well is this whole proposal to recast the loans of the nine Discoms. How would you play that theme? What are the utilities you would look at the banks that have exposure to Discoms in the power space?


A: If something that I really want to buy and just forget about and probably go for a holiday for two years would be State Bank of India (SBI) at the current levels. The sheer mammoth and the size that banks is and the fact that what RBI has come out with that these two key strategic banks in India and the fact that joint lender forum (JLF) process; I am not saying it is a perfect solution but the fact is that it gives a substantial edge to these two banks in this whole process.


It may not be the ideal solution as to what I would want or what people would want but given that what is there I think something like that looks very good because these kinds of banks have substantial exposure to all the government accounts, state electricity boards etc and similarly other banks. So, once the whole cycle begins there will be innumerable number of companies and opportunities that will come in and give you because the money is stuck with the state electricity boards, they are not able to buy. So, therefore the ancillary industry who supplies equipments to them, who deal with them, contactors they are stuck which are a large number of listed companies. The whole cycle starts moving and that is where we need to keep a watch on as to who will benefit from this. Those are the ones which will give us those 2x and 5x returns.


Latha: In terms of valuation, which of the capital goods companies do you like? I am saying valuation because Larsen and Toubro (L&T) is a stock on everyone’s radar and therefore well priced. Would you look at other capital goods and for that matter even the construction companies, you spoke about infra in particular.


A: I think second tier good quality construction companies, second tier good quality infra execution companies are the ones who will gain maximum. There are a large number of them which one needs to look at, in which, really in the last three years have been beaten down to nothing as if they don’t exist. But investors need to remember that you need to do a lot of homework there, you need to watch them and its only then you are able to beat the returns that you get from L&Ts and all. You just can’t be complacent about them. So, given my kind of investment profile, that’s where I would want to be. But if someone who really does not want to get into that then of course Bharat Heavy Electricals Limited (BHEL) and the L&Ts would give 10-20 percent returns an annum on your portfolio, sit on them for five years and forget about it. But if you really want to make that extra 30-40 percent CAGR (compound annual growth rate) over 5-8-10 years, then you need to go down and do work on these second tier companies which would become big because after all if you look back five-eight years, ten years back, what HDFC Bank was and what HDFC Bank is today, so if someone did his homework then, he won’t be laughing his way to the bank, he probably would be owning half of his own bank so if he sat in there. So, this is the key issue for an investor and not to worry about what’s happening on a daily basis. Get the theme right, sit on it.


Latha: Just one final question to you. Telecom, now they have also payment bank licences; with or without it, is that a space that you like?


A: I like that space but again it is not going to give quick returns. The froth needs to go out of there. However, I think companies like Reliance Communications (RComm) look very exciting if what one hears right now what Mr. Ambani announced in terms of being able to align with the Jio launch and the Jio integration over the years ahead. I think something like that can give phenomenal returns.


Bharti Airtel is a stable space to be in both in terms of payment licence play as well as the telecom play etc. However, if I want to play some high risk and high beta plays and get more money I would bet on probably on Idea Cellular and RComm at this point of time because telecom sector woes are more or less out of the way. Government is in real aggress sorting out mode. I like the decisions that they have taken on the spectrum sharing and all those things.

However, what I like about the government is, it is slow but it is solving problem. It addresses problems, it bounces off the industry, bounces it off all the consumers. It has made mistakes, it re-tracks, it corrects but it is solving problem that is I think what I am really impressed about this. It is addressing the issues at hand.

First Published on Oct 6, 2015 09:39 am
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