If the situation intensifies in terms of rise in the number of cases and deaths, the probability of sharp fall increases. In red zones the lockdown is expected to extend beyond May 17 and thereby even if the restrictions are eased in green zones inter-district/interstate travel will not be allowed, Sumit Bilgaiyan, Founder of Equity99 said in an interview to Moneycontrol's Sunil Shankar Matkar.
edited excerpts:
Q: Do you think the central government and state governments will increase taxes on non-essential goods and services, and also on rich to make up the fiscal deficit if they announce a bigger stimulus package? What are other things government can do to maintain fiscal deficit?
Such a move if any may be termed as farfetched as high-income group taxes are already on the higher end and also do not contribute significantly to the government's kitty, while putting it on all non-essential goods may not be practically possible.
It is even possible to say on super-luxury category or imported goods BUT they too don't contribute significantly to government kitty, however, looking at the current situation they aren't improbable. The government may try to loosen up the FDI norms to set up manufacturing facilities in India, incentivise the exports, introduce higher rate long term government bonds and may tap supranational entities for deficit funding.
Q: Reliance Industries as an index heavyweight supported the market strongly in a weak sentiment. Do you think the company will sell more stake in the coming days, and as a result will not go for Reliance Jio IPO? Also, do you think the stock will cross Rs 2,000 mark by Diwali?
With more stake being sold, the Jio IPO possibilities solidify as at some point these investors will want an exit which looking from current juncture seems they can get only from an IPO. We do not expect any incremental significant stake sale.
Also, with low demand of fuel and petroleum products amid COVID-19, we do not expect the refinery vertical to perform well while Jio may continue to do well, implying an overall muted performance and hence stock rallying to Rs 2,000 by Diwali seems unlikely. Any rise in price above levels of Rs 1,700-1,800 may witness strong profit booking.
Q: After a 600 points correction in the Nifty last week, do you think the market will break 7,500 in May if the lockdown is extended and COVID cases continue to rise?
If the situation intensifies in terms of rise in the number of cases and deaths, the probability of sharp fall increases. In red zones the lockdown is expected to extend beyond May 17 and thereby even if the restrictions are eased in green zones inter-district/interstate travel will not be allowed.
Q: What are the major factors to look at in the coming week which can direct market on either side?
Major factors will continue to remain monitoring of rising cases in India and globally, any discovery of treatment drug and vaccine, and global cues from commodity and oil markets.
Q: Smallcap and Midcap indices fell 4-5 percent last week, but outperformed benchmark indices. Do you think there has been buying in beaten-down quality stocks? What are your top three picks that can create value for shareholders?
Midcap and smallcap stocks can outperform in next 1 to 2 years. But from lower levels, because from last 1 month many stocks have risen by 30-50 percent, better to wait for lower levels for fresh investment.
The company has posted strong numbers for Q3 FY20. Stock trades at PE ratio of 7.7x. Its PAT has grown at 78.76 percent CAGR over the last 10 years. Stock is looking highly undervalued at CMP. Nippon India Small Cap Fund holds 6.36 percent stake in this company. We are strongly recommending a buy for medium to long term.
Laurus Labs posted strong numbers for Q4 FY20 & FY20. During Q4 FY20, its net profit increased by 155 percent to Rs 110.15 crore YoY on 32 percent higher sales of Rs 839.14 crore. For FY20, its PAT increased 172.26 percent to Rs 255.27 crore on YoY basis and sales grew by 23.55 percent to Rs 2,831.72 crore. The stock trades at PE ratio of 18x. Management is highly confident for healthy growth in FY21. We are recommending a buy in a staggered manner for medium to long term.
EID Parry is a significant player in sugar with has interests in promising areas of nutraceuticals business. In the nutraceuticals business, it holds a strong position in the growing wellness segment mainly catering to the world markets with its organic products. At the CMP of Rs 165, the stock trades at a P/E of just 6.5x. We are recommending a buy in a staggered manner for medium to long term.
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