With US elections getting closer, chances of profit-booking are high: Paras Bothra

Investors are sceptical about putting in more money amid growing border tensions with China and the US elections drawing closer; there is an anticipation of profit-booking in the US markets as well, Paras Bothra, President of Equity Research, Ashika Stock Broking, says in an interview to Moneycontrol’s Kshitij Anand. Edited excerpts:

Q) The Nifty lost steam in the second half of the week. What led to the price action on D-Street in the week gone by?

A) Investors are indeed anticipating profit-booking and hence, are sceptical of putting more money amidst growing border tensions with China.

Moreover, with US elections now getting closer, there's an anticipation of profit-booking in the US markets too. The fact that tech stocks led a boom in the US markets have now reached even greater proportions than last seen in the dot-com bubble—is alarming, to say the least.

Q) In terms of sectors, some action was seen in the IT index and consumption. Selling pressure was seen in the banking as well as the realty spaces. What is weighing on these two sectors? Is it just profit-taking or moratorium overhang on the banking space?

A) Loan restructuring will weigh on the banking space over the next one year or so in reminiscence of banks underperformance between 2012-14, weighed heavily down by NPAs (non-performing assets).

However, this could pave the way for consolidation in the sector in favour of strong private names. The realty sector is expected to remain muted in the short term since people are still uncertain of committing to such a large burden, although there is traction in higher-end projects, which are also being offered at a discount.

IT and consumption will play out as themes as demand across economies stabilises and eventually banking and realty will also catch up.

Q) What is your take on the SEBI’s new margin requirement? How have investors responded to it?

A) The margin requirement is a sensible move from the standpoint of where markets are at present. However, it is detrimental for volumes nonetheless and while investors will come to terms with the new norms, some part of the volume erosion is permanent.

So far, there have been technical glitches with some of the trading members, however, things will fall into place with time.

Q) Any top buy ideas that investors can look at on dips for a period of one-year or more?

A) Here is a list of stocks where we have a buy recommendation:

Phillips Carbon Black Ltd (PCBL) 

PCBL is a part of RPG Group and the largest carbon black manufacturers in India by capacity and seventh-largest carbon black company globally.  Post-COVID era, PGBL is expected to benefit from a shift towards personal mobility and the pent-up demand in automobiles.

The company continues to expand its product portfolio of high-performance high-margin grades for both rubber and specialty black applications. The company identifies Specialty Carbon as the next growth driver thus expanding its capacity to meet the demand and also to sustain higher margins.

The government’s increasing focus on the domestic manufacturing sector by reducing import dependency is another positive catalyst for PGBL in the long run.

Mishra Dhatu Nigam Ltd (MIDHANI)
MIDHANI has a unique business model due to its presence in the niche precision defence and space equipment market and its aggression towards targeting import substitution products to increase its market share.

The company’s focus on diversifying its products from the current two-three sectors to sectors like the railways, oil and gas, automobile, aerospace, etc will help it to minimise the business risk and improve the future revenue visibility.

It is believed that the increasing number of launches by Isro and the government’s focus on defence modernisation through 'Make in India' is a positive catalyst for the company.

A strong order book provides visibility of nearly eight-10 quarters, new product developments and better margins through cost reduction are other triggers for the company.

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