The market will be factoring the weakness in March quarter results which will come in H1 FY21 and so I do not see any reason for the rally, I believe Nifty50 should be rangebound between 9,000-10,000," Sumit Bilgaiyan, Founder at Equity99 said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: The market snapped the three-week losing streak and climbed 6 percent this week.How do you see June panning out? Can Nifty surpass 10,000?
The ground reality in India has been quite divergent. The business has been badly disrupted and operations have been stalled and recovery of these businesses will not be V-shaped, it will take a good amount of time for these to recover. Majority of the Q4 FY20 results will be coming in June 2020 as the deadline is June 30, but these results will not be that bad as lockdown started on March 24. The market will be factoring the weakness in results which will come in H1 FY21 and so I do not see any reason for the markets to rally, I believe Nifty50 should be rangebound between 9,000-10,000.
Q: Bank Nifty rallied nearly 12 percent in the week ended May 29. Do you expect the uptrend to continue in June as well?
There is no definite reason for Bank Nifty to rally in June. Unlike the manufacturing/industrial companies for which we can say worst is over as lockdowns have started easing in various parts of the country, Banks/NBFCs the worst will be seen over the coming 1-2 years in the form of NPAs/bankruptcies as many businesses will be failing.
Q: Do you think the market rally was because of expectations of another stimulus package for demand revival? Do you expect the demand revival package to be announced soon?
No, I do not believe that markets would have rallied on expectations of another stimulus package, as market participants are well aware that the government will not be able to take a bigger fiscal deficit. Although, I expect a revival package for the most affected sectors like aviation, hotels, restaurants, tourism, malls/cinemas, tourism.
Q: What are the top five stocks you'll recommend?
VIP Industries: Enhanced product mix and focus on product designs over utility will aid growth. It is a niche company in travel-related industries which will have a long runway for growth. It has shown stellar RoCE/RoE performance over the last decade. It is currently trading at 22x trailing EPS which is considerably lower than pre-COVID valuations.
Ashok Leyland: We expect revenue growth to rebound in FY22 on the back of a revival in the commercial vehicle cycle. We expect cash accruals to improve, led by a strong volume uptick in FY22, an improvement in EBITDA margin, better product mix and operating leverages. Ashok Leyland will be facing a sharp drop in volumes in FY21. Historically, commercial vehicles cycle has seen a 2-year bearish period followed by a 3-4-year bullish period. It is currently trading at 12x trailing EPS which gives a significant margin of safety to the investor.
Crompton Greaves: The company has made significant efforts in branding, premiumisation and product innovation which are driving growth under the new management. It is looking to increase its distribution reach by 50-60 percent. It is one of the best-performing companies in the consumer durables space, also a mass premium brand which is best suited for India.
Bharti Airtel: Bharti Airtel is one of the top telecom players in India, and is currently in an oligopolistic market with only rivals Jio and Vodafone Idea. The barriers to entry are extremely high in this industry, and the pricing power has come back with the players due to consolidation over the last decade. Mobile revenues would benefit from a steep tariff hike of 20-40 percent taken across prepaid plans with effect from December 4, 2019. We believe it would be the best stock to hold to play the digitalisation theme in India.
Prince Pipes: Prince Pipes is the fifth largest pipe players in India with a market share of 5 percent in a Rs 30,000 crore industry. It has created a good brand image in recent years and also has a robust distribution network (1,408 distributors) comparable to the market leader. It has manufacturing plants spread across India which helps it to reach all the markets, also it is planning to add a new plant in Telangana from the IPO proceeds which will fuel further growth in East and South India markets. Currently, it is trading at 8x trailing EPS (60 percent below IPO valuation), which makes it a compelling buy.
Q: What would be key triggers to look at in June and what should be one's strategy?
Positive triggers could be the re-opening of various parts of the country amid easing of lockdown, better pickup in demand in various sectors, the stimulus package for the most affected sectors.
Negative triggers could be an extension of lockdown in major cities of India, a sharp increase in the number of COVID-19 cases and sluggish demand revival in the opened areas. One's strategy should be a bottom-up approach, and one should focus on the stocks he wants to buy rather than the broader market. One can also choose to do a weekly SIP on the stock that he wants to buy but is afraid of sharp market corrections.
Q: Reliance Industries Rights Entitlement has closed for trading now. What should be the next, and what could be the listing price on June 12, and what is the strategy one should consider once the RIL partly paid up rights shares list on June 12?
It is the first time that shareholders received Rights Entitlement in their demat accounts which are available for trading. Reliance Industries has done a rights issue in the ratio of 1:15 i.e. one share allowed per 15 shares held.
As May 29 was the last day of trading, the shareholder having Rights Entitlement in his/her account on June 2 will be eligible for partly paid-up rights shares and the payment of the first instalment of Rs 314.25 has to be done by June 3. Shareholders who paid the first instalment will get partly paid-up rights shares in their account by June 11 and these shares will be listed on exchanges on June 12. The second instalment of Rs 314.25 will be due in May 2021 and the last instalment of Rs 628.50 in November 2021.
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