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MC Interview | Santosh Meena of Swastika Investmart highlights top 5 risks for market rally by Samvat 2078

Paytm and Sapphire Foods both IPOs are for aggressive investors because both are loss-making companies.

November 06, 2021 / 11:04 AM IST

Santosh Meena, Head of Research at Swastika Investmart, said his company is bullish on the domestic economy-facing stocks and hence State Bank of India and Sobha are its top picks.

“Strong earnings recovery will be the topmost thing that will drive the market rally and consumption may see further momentum across the different verticals after almost two years of a down cycle,” says the seasoned technical and derivative analyst in an interview with Moneyontrol.

On the risk factors, he feels inflation is the biggest risk for the global markets and it may lead to intermediate corrections. Excerpts from the interaction:

What are the top five key events that will boost the market sentiment and the top five risks that might spoil it by Diwali 2022?

Strong earnings recovery will be the topmost thing that will drive the market rally and consumption may see further momentum across verticals after almost two years of a down cycle. Picking up momentum in asset monetisation programmes of the government can also improve the sentiments. The government may also try to push further the growth and consumption momentum in the upcoming Budget as it has secured strong tax collection.

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Retail participation has jumped significantly in the last one-and-a-half years and it may see a further rise in the coming year, thanks to technology and awareness, which may help sentiments to remain upbeat because we are now not majorly dependent on foreign investors.

If we talk about the risk factors, then inflation is the biggest risk for the global markets and that may lead to intermediate corrections. Crude oil is continuing its upward journey and it may cross the level of $100 mark that is a negative factor for the Indian market. It is expected that the US Federal Reserve will hike the interest rates where it will be important to see that how the Fed will negotiate between inflation and growth and this may cause a lot of volatility in the market.

We will have elections in big states like Uttar Pradesh and Punjab that may also cause a lot of volatility in the market. COVID is still not out of our life completely and if there is any negative surprise from here then that could be a bigger risk for the current bull run.

What should investors choose among Paytm and Sapphire Foods IPOs for the next week?

Paytm and Sapphire Foods – both the IPOs are for aggressive investors because both are loss-making companies.

Paytm is a very big IPO and it is a new-age fintech company where it is difficult to value such kind of business as of now because we don’t have listed peers to compare and the market is betting on future expectations. We are going to have lots of new-age businesses in the coming years but only a few of them will emerge as a leader and those may create big wealth for the investors but many of them can destroy the wealth of investors. Therefore, only very aggressive investors are advised to apply in Paytm for the long term.

Sapphire Foods is again a loss-making company. However, we have seen successful companies in the market from similar spaces. If we talk about valuations, then it is coming out with 7x FY21 sales, while recently listed Devyani International is trading at 14x FY21, therefore it is coming out with attractive valuations compared to its peers. It has strong brand names under its umbrella. One can apply in this IPO for listing gain, whereas aggressive investors can hold this company for the long term.

What are those two stocks that you are bullish on for the next one year or by Diwali 2022, and why?

My top two picks for the next year are SBI and Sobha. As I said, I am bullish on the domestic economy facing stocks. The banking sector is also coming out of a tough time and ready to support the economy where we have seen the worst of NPA (non-performing assets) cycle because most of the clean-up has been done and most of the banks have a very healthy balance sheet. SBI sees very strong results for the last few quarters with strong improvement in the asset quality where it is performing better than HDFC Bank in most of the parameters while it is trading at 1.6 P/B (price-to-book) against 4.2 P/B of HDFC Bank.

Technically, it is giving a breakout of 10 years of consolidation similar to 2003 where it didn't perform from 1992 to 2002 and then it gave breakout in 2003 where it moved to Rs 300-plus from Rs 30 level. Therefore, we can expect a similar kind of move in the coming years.

Sobha has a diversified both its portfolio and geography. It is showing strong growth momentum in terms of sales from where it will pick up pace.

What could be listing expectations for Nykaa and Fino Payments Bank after closing IPOs?

There was a strong response for the IPO of Nykaa and we are expecting more than 50 percent listing gain. It is one of the few profitable e-commerce companies with a strong growth outlook amid low penetration.

Fino Payments Bank is a fast-growing fintech company and it is one-of-its-kind company to list on the stock exchanges. If we consider last year’s profit, then the PE (price-to-earnings) ratio turns out to be around 235. However, it has carried forward losses which is a major concern. Its unique DTP (Distribution, Technology, and Partnerships) network and new-age business model may garner investors’ interest. We are expecting a flat or minor listing gain in this IPO.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Nov 6, 2021 11:04 am

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