BNP Paribas prefers consumer picks post correction along with retail-focused private banks and bottom-up mid-cap picks
We continue to prefer consumer picks post correction along with retail-focused private banks and bottom-up mid-cap picks, Gaurav Dua, Head of Research, Sharekhan by BNP Paribas, said in an interview to Moneycontrol’s Kshitij Anand.
Q) Sensex plunged by nearly 2000 points in just 4 trading sessions in the week gone by. As a house view, what are you advising your clients?
A) The RBI policy remained the key event with the MPC surprising with no rate hike and the talk on tightening capital adequacy rules which kept markets under selling pressure especially financials.
We reiterate our cautious view on the market and we feel that rising oil prices will be a concern. Also, the ongoing trade wars between the US and China will continue to keep investors on the edge.
However, amidst this turmoil, we feel there are select buying opportunities in sectors such as IT and Pharma. We like stocks such as HCL Tech from the IT space and Sun Pharma. A weaker rupee will help aid margins for these companies in the coming months.
Q) How is October likely to pan out for investors? 10 years data suggest that 50% of the time bulls maintained their hold on markets. Sensex fell the most in 2008 when it tanked 25%, followed by 7% fall in 2009 and 2% fall in 2010. It rose 5% in 2017, and 8% in the year 2013.
A) We expect markets to find support from healthy Q2 results and easing out of nervousness in money markets. Consequently, the month of October could be more of indices slipping into a consolidation zone post the recent sharp correction.
Q) Top five ideas which you think investors could buy now and should be able to give multibagger returns in the next 1-2 years?
A) Volatility is the friend of an investor that offers an opportunity to gradually accumulate quality companies at reasonable prices. Our top five picks for an investment horizon of 24-30 months are ICICI Bank, ITC, Aarti Industries, Jubilant FoodWorks, and Bajaj Finserv.
Q) What should investors be buying at current levels after some 2000-points slide seen in S&P BSE Sensex and double-digit cut seen in the small & midcap space?
A) We continue to prefer consumers post correction along with retail-focused private banks and bottom-up mid-cap picks. We are also positive on exports driven IT Services and pharma space.
Q) Do you think we are on the verge of another financial crisis thanks to IL&FS defaults which has shaken confidence of everyone?
A) Downgrade of the credit rating of IL&FS paper to ‘D’ (default) from ‘AAA’ has unnerved the money markets and shaken the confidence of investors in debt paper from NBFCs. This has led to a spike in yields and the ability of NBFCs to raise short-term funding at a reasonable rate becomes questionable.
However, the Reserve Bank of India (RBI) has taken steps to infuse liquidity (OMO of Rs36,000 crore) to calm money markets and to avert build-up of a crisis situation.
Q) What are your views on NBFCs? Do you think the golden run they enjoyed earlier is now over? Any NBFCs which you think are still good buys on dips?
A) NBFCs tend to underperform during the rising interest rate cycle. However, the same was largely ignored in the past one year as the earnings of NBFCs were expected to remain healthy driven by strong growth in advances.
However, the recent events leading to a sharp surge in yields have triggered de-rating of NBFC space especially since most NBFCs were trading at premium valuations post the rally of last two years.
Given the emerging scenario, we believe that the macro tough conditions would continue to weigh down on NBFC valuations and investors need to be very selective in the space.
Q) Most global brokerage firms do not see much upside in Indian markets in the next 6-12 months? What is your view?
A) The near-term cautious approach is more of a tactical call based on the fact that Indian markets trade at record high premium to emerging markets peers despite unfavourable macro conditions and politically important state elections ahead.
We also believe that valuation constraints, macro challenges, and state elections could result in volatility in the near-term. On the other hand, we see downside cushion in terms of healthy revival in corporate earnings.
Q) How should investors read into challenging macros which have gone from good, bad and now to slightly worse? (Rupee, CAD, Oil prices)
A) In the past couple of quarters, the scenario has changed completely from strong macros but weak micros (corporate earnings) to weakness in macros but a healthy revival in micros.
Accordingly, we have been advising clients to rejig the portfolios in favour of export-driven sectors by reducing exposure to interest rate sensitive sectors.
Q) Do you think we are heading for triple-digit level with respect to crude oil? And, if that happens, will market erase gains made in 2018?
A) It is practically not possible to predict short-term movements in crude oil prices. However, we believe that the rising production of oil & gas in the US and lackluster economic growth in some of the major regions globally would limit upside in energy prices over the medium-term.
We already see reports of oil production in the US which has surpassed oil production in Saudi and Russia. With the rise in crude prices, a lot more supply would come in from marginal oil fields and shale gas.
Q) What are your views on Yes Bank and the reasons behind the fall? Some of the global investment banks have removed Yes Bank from their model portfolio.
A) We have turned ‘Neutral’ on Yes Bank. The primary reason for the downgrade in rating by us was driven by the red flags raised by the regulator on the compliance and governance at the bank rather than a change of guard at the helm of the bank. Yes Bank was not part of our preferred picks in the banking sector.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.