Ajay Bodke of Prabhudas Lilladher says caution should be the buzz word in these volatile times until September 4 Fed meet, after which the market will determine its course.
Equity market across continents are in a flux, thanks to a slowing Chinese economy which worked as the worled factory for the last few years. In the midst of uncertainty, the question of Fed rate hike have also kept the bulls largely confined.
Ajay Bodke of Prabhudas Lilladher says caution should be the buzz word in these volatile times until September 4 Fed meet after which the market will determine its course.
In all the chaos, Bodke advises looking at stocks in the largecap space. He also says to buy Motherson Sumi and Bharat Forge, Glenmark Pharma and Jubilant Life for the medium term.
Below is the transcript of Ajay Bodke’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: When we spoke with you last week as well you had indicated that it is a good time perhaps to put some money to work what are the sectors or stocks that you would advise one should pick up now?
A: After the gut-wrencing wobbliness that one saw in the market last week, caution in my opinion will be the buzz word because all eyes will be on what happens in the meeting that US Fed has on September 4th. The signals coming from there will determine the course of the global markets this week.
Yesterday’s statement by Stanley Fischer, US vice chair person of US Fed, I think again has set the cat among the pigeons because he said that effects of a strong dollar and weak oil prices are seem to be diminishing and dissipating. So, the positivity that the market was expecting from Reserve Bank of India (RBI) governor statement that he sees possibility of a rate cut, kind of a dovish stance that he has taken, I think will in my opinion also be have to be balanced with what the statements comes from the US head officials. So, I would in this week advise caution and look at only stocks and sectors in the largecap space.
I would advise investors to look at the some of the front line names like Larsen & Toubro (L&T), HDFC Bank, Maruti Suzuki. Even sort of on the medium commercial vehicles (MCV) and heavy commercial vehicles (HCV) side where we are seeing continuous strong traction names like Tata Motors or Ashok Leyland.
Sonia: You spoke about lot of laregcap names. Names like L&T, Tata Motors etc but what about in the midcaps because over there as well there are plenty of stocks a good quality names that are giving you better value but they have fallen about 10-15 percent in the last one week or so anything that you have identified there?
A: One has seen a very sharp cut in some of the quality midcap names and if one takes a slightly medium-term perspective then the auto ancillary space has thrown a quite good opportunities. If you look at a stock like Motherson Sumi after scaling a high of Rs 393 or Rs 394 it had taken a sharp plunge Rs 100 down and then again it is seeing some bounce back. There it is trading at around 17.5 time FY17 earnings with a very strong earnings growth of 38 percent this year and 55-58 percent next financial year that is one stock with a medium-term investor could look at adding in their portfolio.
Even stock like Bharat Forge has seen a very sharp correction from the peak. There one can look at some commitment. Also on the cement space as the monsoon gets over and the construction activity starts picking up that is one space which will start attracting investor’s interest. There, in the midcap space JK Lakshmi cement is one that we are advocating investors to look at from the medium-term perspective.
As the currency wobbliness continues pharmaceuticals is one space where some of the midcap names like Glenmark Pharma which Sudarshan Sukhani spoke about and Jubilant Life Sciences are the ones where we had advocate investors to take a slightly medium-term call. Also in the engineering space Cummins after a sharp move post results to Rs 1,280 it had come down again to Rs 1,025 the level from where it started. I believe it has moved up now to Rs 1,100 levels but if you take slightly long-term view some of the names in that space like Cummins also can be looked at sort of by investors.
Latha: Are the road contractors not one of your, I did not hear any of them on your buy list. That is the one area where the government seems to be getting its act together.
A: Yes. I think I have been mentioning this for the last now, three to four months, that the total spend that the government has front loaded, the capital expenditure (Capex) that the government front loaded mainly in the two sectors, the roads and railways. In railways, in the first quarter we have seen Rs 17,500 crore of total Capex which is 134 percent growth on a year-on-year (Y-o-Y) basis and more than Rs 13,500 crore that the government had budgeted in the first quarter.
And in roads especially, it is all the more spectacular because Rs 48,000 crore worth of orders till July have been placed by National Highways Authority of India (NHAI) and Ministry of Road Transport. Hence Sadbhav Engineering and Ashoka Buildcon, the two prominent names which are pure plays in road sector come to mind if one is looking at investments in the medium-term. And for the full-year, we are expecting around Rs 1 lakh crore worth of orders to be bid out by NHAI and Ministry of Road Transport.
So, that is one sector where a lot of activity is happening and hopefully that should start reflecting in the downstream demand also with the passage of a quarter or so.
Sonia: From the private banks, we got good corrections in names like IndusInd Bank, Kotak Mahindra Bank that all fell about 8-9 percent last week. Considering that there is nothing majorly wrong with the financials of these banks or with the fundamentals of these banks, do any of these portend a good buy?
A: I think the names that you mentioned already figure as a very large allocation in the portfolios of many institutional investors because the common thread, if you look at the private sector banking pack, then all the retail focused banks, be it the banks that you mentioned, IndusInd, Kotak or even HDFC Bank, today form a very large chuck of the portfolio for obvious reasons – the provisioning levels being very low, profitability matrix looks very good. But at the same time, the valuations are at a premium to the corporate focused banks, be it Axis Bank, Yes Bank or ICICI Bank.
So, even though these banks have corrected by 8-9 percent, as I said, the allocations already are very high that these banks have in the portfolios. So, how much more can one allocate there. Whereas, if the economic turn does happen in a quarter or so, then the corporate focused banks will at some point in time come back into play and attract larger allocations and they also are trading at steep discounts to the retail focused banks. So, that is one sort of area where I would advise investors to take a slightly medium term call and on every dip, start looking at some of the corporate focused banks, be it Axis Bank, Yes Bank or ICICI Bank.The Great Diwali Discount!
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First Published on Aug 31, 2015 09:53 am