Investment advisory firm Equity99’s founder Sumit Bilgaiyan thinks the market needs a correction as indices are trading at expensive valuations but FIIs have been supporting the market.
Economic data may be showing signs of recovery but it will support the market only if the growth picks up to pre-COVID levels and stays there or gets better, says the veteran investor who has an MBA in finance. While profitability in the September quarter looks good, unless the growth in sales is back to where it was before the viral outbreak, the rally in the market cannot hold, Bilgaiyan says in an interview to Moneycontrol's Sunil Shankar Matkar. Edited excerpts:
Q: Given the improving economic data and earnings, do you think the market will get back to record highs after the US presidential election?
It is believed that either of the outcomes of the US election will not have any material impact on the Indian markets. Whether (Joe) Biden comes in power or (Donald) Trump, they will prove beneficial in one way or the other by being favourable either to India's trade to the US or the market liquidity overall.
The Nifty 50 is trading in an expensive terrain. It needs correction. However, the FII buying has been keeping the markets from falling freely since the beginning of October and before that between May and August 2020.
Improving economic data points will be supporting the markets sustainably if the economic growth picks up to pre-COVID levels and can stay steady there over the foreseeable future.
Q: What are your thoughts on the September quarter earnings season? Do you think the earnings season has indicating recovery?
The sales growths on a YoY basis have been muted for a lot of companies but net profits growth has been strong on the back of cost restructuring and other such measures. So while profitability recovery could look enticing, unless the sales growth resumes back to pre-COVID levels, the rally in the market cannot sustain, as only the higher sales growth can make sure that the rally continues without turning into an expensive proposition.
Q: After the September quarter earnings, which are the five-10 stocks you want to buy and why?
SBI Life Insurance, ICICI Securities, Coromandel International, APL Apollo Tubes, Ipca Labs, Divis Labs, and Thyrocare.
SBI Life Insurance: Premium growth has been robust, products mix is enhancing margins, and reach is rising with an increasing share of business per branch network and rising digital footprint.
Coromandel International: The fertiliser manufacturer is expected to do well with their new phosphoric acid plant commissioned bringing in the advantage of backward integration and rabi acreage.
ICICI Securities: It is a leading broking house with a steadily rising client base. Despite the onslaught of the discount brokerage players, the firm has been able to gain market share.
APL Apollo: It is a leading steel pipe manufacturer. It is expected to see improvement in margins due to operating leverage, and better realization due to value-added products' sales. The company is also expected to benefit from deleveraging on the back of improvement in generating free cash flows.
Ipca Labs: The company is largely present in pain management, cardiovascular and other therapies in domestic formulations. API manufacturing forms 25 percent of the total revenue of which 79 percent gets exported. It has been guiding for higher sales growth for FY2021 compared to earlier guidance and gross margin expansion of 100-150 bps due to lower material costs. The sales growth is likely to rise on the back of strong export opportunity, outperformance in the domestic market, and backward integration.
Divis Labs: The company is expected to benefit from higher demand for APIs, and experience margin expansion due to in house manufacturing of intermediates and capacity expansions.
Thyrocare: It is a leading diagnostics chain.
Q: Should one start investing in the infrastructure sector with the easing of lockdown and labour coming back to cities for work?
Infrastructure play is still intact but needs thorough scrutiny at each company level before deciding.
Q: The auto sector has rallied sharply in the last few months amid improving data points. Should one start buying these stocks or wait for a major correction?
Two-wheeler and tractors could be sustainable bets within the space and TVS Motor, Eicher Motors and Escorts could be good picks within the space.
Q: India's recovery and fatality rates have been improving but reports talk of a second coronavirus wave in November and December. Do you think there will be another lockdown and the second wave will impact growth?
We believe the cautious stance may continue till a viable solution is in place in terms of a vaccine.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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