Edelweiss Sec picks Tata Power, Adani, L&T and JSW

Nischal Maheshwari of Edelweiss Securities feels that international interest has increased and domestics are bit skeptic on the Indian market given that the budget is around the corner.

As an investment strategy, he is positive on high-beta names like banks, auto, cement and real estate. In power sector, Maheshwari likes Tata Power. He is also bullish on Jaiprakash, Nagarjuna Construction and Larsen and Toubro (L&T). Below is the verbatim transcript of his interview to CNBC-TV18 Q: What is the sense you are getting from the zillions of investors you will be speaking to at the conference? Is the mood positive that we are going to see possibly a little more of the pre-budget rally or will the budget, if it shows any conviction of 4.8 or 4.7 percent fiscal deficit engender a fresh bout of buying? A: I think mixed reaction. Definitely, we are seeing there is increased interest from the amount or the number of people, which have come from abroad. We have 34-35 funds which are participating from abroad in this conference. This is the largest number of investors we have seen in our conference coming from abroad. So, the international interest is much higher than we have seen previously. Domestics are a bit skeptic given that the Budget is around the corner. They would like to see the continued good information to keep on flowing before they want to commit more money into the market. Q: What is the sector stance that investors have at this point in time? Are they looking to up their portfolio with high-beta stocks or is it still sticking to high-quality names in the market? A: The mood is definitely there to start looking at beta. Possibly what they are showing right now is the high amount of interest on the banking side. I think banking is also another way to play the beta.
 
There is clear interest as far as beta is concerned. To start with banking, we are saying that highest number of meeting which we have got is basically from the industrial side. So, whether it is Thermax, Larsen and Toubro (L&T), Crompton Greaves, these are largest number of meetings one is seeing for this sector. Basically everybody is trying to find out if change is happening on the ground. So, the interest is very high as far as beta is concerned. However, consumer still continues to be very much in vogue. Q: With respect to the earnings season, a bulk of the earnings are over, though some big boys like Oil and Natural Gas Corporation (ONGC), State Bank of India (SBI) are yet to announce. What has been your sense? Is it giving you a sense of bottoming out and more importantly where are you seeing now valuation headroom? What’s your buy-list? A: I think Q3 results have been slightly better than expected, especially on the top-line. Also, on the top-line we had expected close to around 10-11 percent, where it is shown around more than 14 percent growth. Bottom-line is the same trend, which we have been seeing in the last three quarters. It has bottomed out and one is seeing margins improving both in the earnings before interest, tax, depreciation, and amortisation (EBITDA) terms, as well as on the Profit Before Tax (PBT) terms. _PAGEBREAK_ Q: Therefore what is your conviction list? A: We have been positive on the high-beta names. We have changed our portfolio allocations accordingly. So, we are saying that play it through definitely banks, some industrials, some amount of auto and cement and real estate. We have been increasing weightage out there. We have cut our exposures to Fast Moving Consumer Goods (FMCG). However, we continue to maintain a high exposure on the media. There is where we see a long-term trend continuing. We have cut down exposures on pharma. So, defensives are definitely down and beta is what we are asking people to add on. Again, on the PBT side margin has been holding on as far as the Sensex is concerned. Close to around 14.5-15 percent, 14.8 percent here. So, I think that improvement on the top-line is definitely positive. Bottom-lines continues to be in the same range. So, very clearly showing signs that the revenue numbers especially on the top-line has started bottoming out. Q: Within the infrastructure space are there any buys that you have? We are seeing result after results being disappointing in this particular space itself. Where do you see the recovery and which stocks would you pick up? A: There is some value which has started emerging basically given that some of these companies have started showing positive outlooks. So, our picks out there have been the asset play like Jaiprakash and Engineering, Procurement & Construction (EPC) company like Nagarjuna Construction. This has been showing now for the last 2-3 quarters improvement in margins and working capital cycle. So, I think all round improvement is happening out there. The other ones which we like are obviously Larsen and Toubro (L&T), which is the big stock or big play out there in the infrastructure side. We are not very comfortable as far as valuations are concerned on Larsen, but I think that’s another play to look at. Q: Are people looking to buy into the dip that we have seen in many of these names like Jubilant FoodWorks, Titan and Bata, anything interesting there? A: Definitely, we have got very good meetings for both Titan and Bata obviously is not there, but like Dabur and Godrej Consumers, there is very large number of investors. They are still going and meeting them and trying to find out how is the growth going on and whether the margins are sustainable or not. So, I don’t think that the allocations may go away in a hurry. Atleast people would like to wait for another quarter to see how the beta plays out and then possibly shift out of consumer into the high-beta. Q: Do you have any of the power stocks in your buy list at all or not yet? A: We like Tata Power out there, which is an interesting space. If the government is in a mood to reconcile, Tata Power would be one of the beneficiaries given that their power purchase agreement (PPAs) also is up for reconsideration. So, Tata Power is what we like. Though I do not have it in my portfolio, but I like Adani and JSW also, the other two big power companies basically which we are going to be big beneficiaries of this.