The Nifty is likely to see a sharp upmove to 8,700-8,800 levels if two key events -- the monsoon session of Parliament (in which the GST bill is widely expected to pass) and Brexit referendum -- see a positive outcome, says Ajay Bodke, CEO and Chief Portfolio Mananger (PMS), Prabhudas Lilladher.In an interview with CNBC-TV18, Bodke said he is constructive on the markets in medium term even as it is exhibiting signs of tiredness [in the near term]. "Largecap stocks are finding it difficult to rapidly move up and some consolidation is expected to happen," he said.Bodke said he was bullish on Tata Motors and IndusInd Bank. In the cement space, his top picks are JK Lakshmi Cement and ACC. Below is the verbatim transcript of Ajay Bodke’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: It has been a very good looking market; the Sensex is above 27,000 what is the advice that you are giving investors, should you still continue buying into the market or is there some amount of caution now?
A: We are constructive on the market in medium-term although I do feel that the market is exhibiting signs of some tiredness and that is why we are seeing that the stocks that have done exceeding well in the largecap space are finding it difficult now to rapidly move up. So, some amount of sideways consolidation will happen.
The monsoon has arrived strongly in Kerala and that news has more or less has discounted. One will start now looking at the temporal and special distribution of the monsoon in the various geographies. All eyes well be on two key events one domestic and one global.
Globally, on June 23rd is the key, what happens in Brexit. Domestically, the monsoon session, all hopes are on the goods and service tax (GST) bill. The government should be able to muster up enough support from the various regional satraps in the south and east to push through the bill. So, these two are the key events that the market is looking forward to. If both turn out to be positive then the market is poised for a very sharp up move from here to around 8,700-8,800 levels in the immediate term.
Latha: We just broke that story that the GST panel, the States panel headed by Amit Mitra is meeting on June 14th and 15th, so GST seems well on its way. What will you bet on only for the theme? Are you buying consumer stocks or logistic stocks? All of them have run up a lot?
A: They have, that is why I will exercise extreme caution before jumping in at the current levels because some of them do look as if having very daunting valuations. So, I will be watching them closely and in any corrective mode I will be looking at stocks in both these spaces that you just mentioned. In addition to that, in general it will also be very positive for other consumption led sectors; companies in the passenger vehicle segment and in two-wheelers also would benefit a lot due to the distribution network sort of logistic network smoothing out. A whole host of consumer led sectors would be beneficiary and I would be buyer there.
Sonia: Let us talk about stocks in particular then because we had very good earnings that came out from a lot of heavy weights like Tata Motors, Zee Entertainment, Asian Paints, IndusInd Bank, all these stocks are sitting at new highs. What would top your list from the heavy weights now?
A: Tata Motors stands out head and shoulders along with IndusInd Bank. These two names stand out head and shoulders above the two. In Tata Motors' case even after a sharp rise that one has seeing I think both the Jaguar Land Rover (JLR) piece as well as the domestic commercial piece is proceeding at a scotching pace. Our expectation after listening to various companies in the commercial vehicle (CV) space in India makes us believe that there is still two or three quarters of strong growth that we are seeing and the light commercial vehicle (LCV) part which was lagging medium commercial vehicles (MCV) and heavy commercial vehicle (HCV) part also has started picking up pace.
On the JLR side again the retail numbers that came out just a last week continue to makes us believe that the new launches that the company has had as well as the ones on the anvil will continue sort of to ensure that company does well. So, Tata Motors remains a one of our top picks with the medium-term perspective. We have a price target of around Rs 510 levels in the short to medium-term there.
IndusInd Bank, our belief is that the troubles are not yet over in case of corporate focus private banks as well as public sector banks. So, our preference is IndusInd Bank and HDFC Bank on the banking side. On the corporate focus side Yes Bank continues to be our liking. We expect a very strong performance to continue over the next few quarters.
Asian Paints, I am worried because a) stock has run up very strongly and b) with the sharp rise that one has seen in crude prices lot of crude derivative prices also, there will be an increase. Titanium dioxide is a large component of total raw material cost out there, valuations are very daunting. That is why oil marketing companies as well as paint companies one needs to be very cautious along with the aviation companies.
Latha: I was going to ask you about commodity stocks, but more midcap varieties because that seems to be the flavour of the season. Tea stocks running up, sugar stocks already ran up a goodish bit and still people are not calling a sell on those, midcap space generally but commodity stocks in particular?
A: The cement space looks very promising. I attended a few conference calls of large and midcap cement companies and the common thread emerging is that the volume growth one has seen, which is in double digit, will get complimented by increase in prices maybe a couple of quarters from now because right now one is seeing the revenue growth being lower than the volume growth in many of these companies because of intense competitive pressure and the plant operating at 60-70 percent utilisation as a whole for the industry, pricing is not back in the industry.
This entire rise in volumes has mainly come from the public expenditure by the government and roads, bridges, culverts and secondary demand has been the housing demand. So, if the rains turnout to be above normal and that latent demand for last two years in the rural side especially which has got bunched up, one will see a very strong upsurge there in case of rural housing. That will compliment the continuing public expenditure. So, cement is one space we are very constructive on.
Largecap name ACC which was relatively less efficient as compared to UltraTech Cement and Ambuja Cements on the cost side, but the company has made by the modernising its plants using more petroleum coke over the last couple of years. So, there I think the dimensional play out and a very strong earnings growth is expected to see in ACC.
Another name that one should look at is JK Lakshmi Cement; 12 million tonne capacity has all the utilities in place to expand it further at very mild increase in capital expenditure. It is present in Rajasthan and Chhattisgarh, currently pricing power is lacking, volumes are very strong. However, as I said as demand environment picks up this is one company that could deliver very good returns. We have a target price of around Rs 415 in the short to medium-term out there.
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