Here are fundamental trading ideas from Mayuresh Joshi

So yes, this is presumably one time impact that these companies might face. The kind of losses that can come through specifically on the two-wheelers and on the commercial vehicle segment might not be large as the market was expecting and there is a possibility of conversion happening on these vehicles with upgrades on the technology front from BS-III to BS-IV.

Yes, that might entail earnings per share (EPS) hit for better part of FY16 earnings but going forward as volume activity starts picking up then there is a likelihood of increase in prices specifically on the two-wheeler segment to the tune of 6-8 percent as BS-IV norms get rolled out. I think they have got some cushion on that front as well. So largely yes, any decline on these stocks like Hero Motocorp, Ashok Leyland yes, they pose good buying opportunities for long-term investors.

Sonia: The other news flow I wanted to discuss with you is in the aviation space. Today we understand that the winners for the regional connectivity scheme will be announced and we know that SpiceJet could be the biggest beneficiary of that. The stocks have been gaining, what do you do here, do you increase your allocation and what would be your favourite?

A: If you look at the entire earnings trajectory for these companies, I think it is extremely lumpy and a few quarters when the holiday season is around, I think the occupation or the load factors start moving up quite significantly. Secondly, I think because of the entire demonetisation effect, the companies have taken a huge hit both in terms of their earnings profile which was clearly reflected on their bottomlines as well as their revenue per average seat available kilometer as the yields which had fallen down significantly.

So, yes, I think competition pressures and again I think the kind of pressures that one really faces from the ATF prices to take away the sheen in terms of the cash flows for these companies and it has been a very complex break up. I think 25-26 percent of their total costs is obviously accounted for ATF, you got employee cost to account for, aircraft maintenance charges around 8-10 percent, the lease back agreements that they have done I think that accounts for 8-10 percent, depreciation of almost 4-5 percent for a company’s quarterly run rate on an annualised kind of reporting.

So, largely again, I think you are probably seeing 70-80 percent of their costs basically depend a lot more on external factors and again I think pricing pressures do take the sheen in terms of cash flows. However, again, with the entire regional connectivity with the prices coming down in terms of cess coming down, in terms of the fuel, I think it is incrementally positive for these stocks and as these get implemented, and the winners are announced, my own sense is that a lot of these stocks have moved up significantly over the past month in anticipation of this news.

Again, I think that does reduce the kind of dependence on the ATF prices that has on the overall cost dynamics of the companies. So, the positive momentum of these stocks might very well continue. Spicejet, Interglobe Aviation, probably can be some stocks that can be looked at. However, again, this can be from a very short to medium term perspective because as I said earlier, I think earnings tend to be extremely lumpy for the sector as a whole.