Mkt not yet frothy; like Bharat Forge, Emami: Capitalmind

Market expert Deepak Shenoy, Capitalmind says the market has not yet reached frothy levels in terms of valuations if you look at trailing price to earnings (PEs) from 2007 or 2000 levels, we are talking of forward PE now of 25. However, if one compares the consolidated results of Nifty companies for the December quarter of FY15 to that of December quarter of FY14 then profits have dropped minus seven percent and drop in revenues too, he said. So a lot depends on what the government does in the budget and potentially through next few months to revive the economy. Emami could be one FMCG company that may not be impacted by the rural slow down as much as HUL would be. It was also outperforming other FMCG players.Bharat Forge is a multi-level play and a momentum stock. With the focus on Make in India, it is also a defense play, which is aggressively getting into. The stock has doubled from September when it was around Rs 600 to current Rs 1210. So although it is highly valued, there is potential for growth is tremendous. MM Forgings is like a secondary investment in the same theme but is a momentum stock.  

Below is the transcript of Deepak Shenoy’s interview with CNBC-TV18's Ekta Batra and Anuj Singhal.Ekta: Following that theme of Suzlon where there is divestment of certain amount of stake and these aggressive measures to actually pare down debt would there be any companies at the current levels that would come to mind which could see a similar story and a similar bounce back on the back of the same sort of divestment of noncore assets getting an investor in?A: The problem with Suzlon is it didn’t really divest a noncore asset. It was a core asset for Suzlon. The point is that crude prices worldwide were so down that I don’t think that foreign investors would have yielded as much. It is the domestic story that will drive them.

If in the same context we take the domestic story then the bet should be solar power because that is also something that is coming up big time, that is not really an establishment of which player will actually win whether it is the solar wind farms or actually solar cell manufacturers because the Chinese solar cells are substantially cheaper and they have flooded the market. So we don’t know where policy will go on that front but that might be an interesting point and of course NHPC because that becomes your de facto source for hydro-power.Anuj: We will discuss some more stocks as well but what is your call on the state of the market right now. Do you think we have now reached frothy levels or you think there is still some more room to go for stock markets from here on?A: There is always room to go. In fact, we are not yet frothy levels in terms of valuations numbers. If you look at trailing Price–earnings (PEs) from even the 2007 or the 2000 levels we are talking about a forward PE now of 25 but the difference this time is we are just seeing the Nifty company results, for the first time in a very long time the Nifty companies’ consolidated results if you add them all up and compare the December quarter to the December 2013 quarter we are seeing a minus seven percent profit. There is a drop of seven percent in profit, there is a drop in revenues as well and you might say Oil and Natural Gas Corporation Limited (ONGC) is a big factor in that. If you removed ONGC it is still minus 1.5 percent. So it is a substantial drop and the fact that we are at these levels with profits dropping it is a little bit of a surprise. So that might be the nature of frothiness and a lot depends on what the government does in the Budget and potentially through the next few months in order to revive the economy. There are headwinds internationally but then there have always been headwinds internationally. The story right now is domestic.

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