Most of the important parameters are turning positive for the economy, says Amit Khurana, Co- Head Equities & Research, Dolat Capital Market. “Trajectory, now, is positively set,” he says. With expectations of economic growth, earnings too are expected to improve in another two to three quarters.Visibility is now improving for non-banking finance companies (NBFCs). Once economy improves, the space will see growth. However, banks are still impacted by stressed corporate cycle. Consumer side is slightly better, he says. Discussing stocks, Khurana recommends Coal India despite no visible volume growth in the company. Amongst oil marketing companies, he is bullish on Indian Oil Corporation and BPCL. Downstream companies are expected to benefit more than OMCs, he says. Khurana is also structurally positive on ITC, but says current valuation is expensive. He expects the stock to outperform its peers. Below is the verbatim transcript of Amit Khurana's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: Start with Sun Pharmaceutical Industries and the fact that we have seen so much derating in the stock. Are you tempted to buy the stock at current valuation?
A: I wish I was but it doesn't look like. The guidance was disappointing and the first half, which may still be supported by the products launches that they had recently and that might have a spill over effect for the first quarter at least and partially for the second quarter. Things do not look that good for the company on overall portfolio basis, so I would still keep a wait and watch signal on that and look out how the first half pans out and how the visibility on critical issues especially the Food and Drug Administration (FDA) relating issues work out. We have seen a lot of challenges for the company and per se for the pharma as a sector, I would still be wary of buying the stock at these lower levels even then.
Ekta: What is your sense in terms of how the FY17 picture might change for Coal India and would you be a buyer?
A: Their ability to take the price hike probably reflecting that the decisions are now being made on commercial level rather than just whims and fancies of any particular entity, but the critical issue here is volume growth. My concern remains that the volume growth has not yet picked up in terms of despatches number. If that shows signs of a turnaround, the stock has a potential to outperform over a medium-term. Having said that even otherwise in spite of volume growth muted the dividend yield, the overall defensive nature of the stock definitely encourages one to look at it. So I would look at it more from a positive bias and top it up with the price hike that they have taken. If they can now ramp up the volume part of it, the stock could be in for some very interesting times ahead and could outperform the market.
Anuj: What is your call on ITC?
A: Our price target is close to the current level, so we were positive on ITC at lower levels and we continue to stay structurally positive and it is one of the few consumer stocks which is available at, whatever valuation it was at, lower levels. The concerns on the cigarette business, when we started recommending about 15-20 percent lower, we thought me, we thought it was very well discounted. At this level I would not be very enthused to add further positions. I would wait and watch and see as to how the other businesses work out and then look to add. However, from medium-term perspective I do believe that it can outperform the overall pack; the fast moving consumer goods (FMCG) space in general for sure.
Ekta: Is the market looking at the growth figures that we got from gross domestic product (GDP) and core sector more favourably?
A: It looks like. We put out a note in the month of April saying that most of the critical parameters on the economy were starting to turn around and as we go into the June month, we are getting more data, of course some bit of that has now started normalising. We had four months of back to back growth in some important economic data that we saw. So that seems to be normalising but the trajectory is now positively set. We may have difference of opinion on the elevated whether the slope is much higher or lower but overall directionally we are finding evidence across segments, across categories wherein things are beginning to pickup. However, for that to now translate into earnings, will probably be a matter of one quarter or two and therefore our positive stance on the market is corroborated on that evidence.
Anuj: The other space which has been active is the oil marketing companies. Bharat Petroleum Corporation (BPCL) is at lifetime high. We have seen decent rally in Hindustan Petroleum Corporation (HPCL) and Indian Oil Corporation (IOC) as well and these companies now have all the pricing power. Do you see more gains for these stocks?
A: Potentially yes, but our position is like that that it could be tactical trades here or there. However, within the pack we have more positive on IOC and HPCL considering that the potential for capacity addition seems to be better place there versus BPCL, while market has a positive view on the investments that BPCL has made. We have a bit of concern on that count. However, having said, we believe that the downstream sectors will benefit more than the oil marketing companies from here onwards considering that crude is at an elevated level and may not come off to the lows now and also we are seeing evidence of volume pickup happening on the lube side, on the city gas side, so we are more bullish on that side of the pack versus the oil marketing companies (OMCs) per se.
Ekta: A lot of non banking financial companies (NBFCs) at fresh 52 week highs. We were just discussing the technical about it but what is driving the fundamental trigger for a lot of these NBFCs?
A: The visibility is getting better for these companies and as we expect the overall economy to start picking up. Hopefully, these NBFCs will start registering better growth. This is quite a contrast to some of the growth numbers that we are seeing from banks but they are getting impacted from the corporate cycle being in such a poor shape but if you unbundle the bank numbers, the consumer part of the banks is also doing well and NBFCs are clear beneficiary of that trend and some of those which have got exposure to the rural side of the business, are going to benefit or improve visibility on monsoons, spending is picking up, some of the data points that we are looking are suggested on that and we are pretty bullish on that pack as a whole.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
