In near term, the downtrend is expected to continue with persisting volatility but over a medium-term Sumit Bilgaiyan, Founder of Equity99 expects the Sensex to maintain above 33,500, he said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q. Sensex lost more than 4,500 points from its record high. What is your view on current market conditions and outlook?
A. The Sensex has lost more than 4,500 points from its peak of 38,989 when it was trading at PE level of 24.5 and has fallen to levels of 22.6. The market has followed a primary downtrend since its peak levels. This downtrend is supported by moderately high volumes which reflect the negative sentiment of the market.
The Sensex at PE level of 24.5 was thought to be highly overvalued compared to its historical average of 17-19, hence although the level of 22.6 seems to be comfortable, there exists headroom for further correction.
With uncertainty looming around the liquidity position of the NBFCs, RBI’s decision to keep the rates unaltered and rising oil prices coupled with depreciating rupee has led to a panic sell-off in the market.
In near term, we expect the downtrend to continue with persisting volatility but over a medium term, we expect the Sensex to maintain above 33,500.
Overall, India's economy and financial markets have benefited from tepid oil prices and a stable currency for many years.
Q. Do you expect the rupee to fall further and crude to rise further?
A. The pressure on the oil prices is likely to continue owing to the Iran sanction coming into effect from November 4, 2018. We expect international oil prices to continue rising due to falling Iran production, the inability of other oil producing countries to substantially raise production, strained response of the oil importing companies across countries to business with Iran even if their own governments are supportive.
We don't expect the rupee to depreciate further by a significant margin unless there is some major development in the US economy leading to further strengthening of the dollar. Since the rupee is now adjusted to REER and because of muted RBI/government response to its weakness, the current rupee levels seem sustainable.
Q. As both factors are impacting the market and likely to impact the economic growth, how will the government handle this situation ahead of states and general elections?
A. We believe that the strain in the economy is going to continue up to the general elections owing to which we expect the current regime to undertake more populist measures by providing subsidies on petrol/diesel prices. We can expect a major populist measure like a farm-loan waiver before elections despite the stress it will put on the government kitty going ahead.
Q. What is your view on current FII outflow and DII Inflow?
A: We believe that the current trend of outflows by FIIs shall continue owing to the strengthening of the US economy, volatility in the Indian market coupled with sharp depreciating trend in the rupee.
While DII inflows are expected to continue, but owing to the current market dynamics these inflows shall be subject to strict scrutiny by the DII players and any unfavourable volatility shall lead to redemptions by them.
Q. Are the valuations reasonable after the sharp correction and really favourable to buy stocks at current levels?
A. Some of the good stocks are selling at significant discounts to their 52-week peaks and might pose a significant buying opportunity for a longer term although in shorter-term they may see a further 10-15 percent correction.
Q. What multibaggers to pick at current levels?
Incorporated in 1990, Acknit Industries is one of the largest manufacturers and exporters of industrial gloves and garments. Acknit has three different manufacturing divisions near Kolkata:
1. Seamless Gloves Division
2. Industrial Leather Products Division
3. Industrial Garments Division
It is trading below 1 P/BV. It has reported excellent results for Q1FY19. Its PAT soared by 155% to Rs 1.2 crore on sales of Rs 34.33 crore. At the CMP the stock trades at a P/E of just 10.3x on its TTM EPS of 12.8. It is regularly dividend paying company. Exports constitute 90 percent of its total revenue and hence, AIL will benefit from the depreciating rupee.
The Andhra Petrochemicals (APL) is the only producer of oxo-alcohols in India. It is trading below 4 P/BV.
It has reported excellent results for Q1FY19. Its sales soared by 44 percent to Rs 165 crore with a PAT of Rs 46.5 crore.
At the CMP, the stock trades at a P/E of just 13.5x on its TTM EPS of 5.47. It will benefit from the depreciating rupee as it also exports its products.
Dhampur Sugar Mills is the first and the largest manufacturer of refined sulphurless sugar in India. Company’s captive power generation capacity is amongst the largest in India. It has also emerged as the highest ethanol manufacturer relative to its cane crushing capacity in the country.
It is trading below an extremely comfortable 0.92 P/BV. It has reported excellent results for Q1FY19. Its sales stood at Rs 734 crore with a PAT of Rs 75 crore.
At the CMP, the stock trades at a P/E of just 13.5x on its TTM EPS of 7.78.
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