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Bulls are lacking energy. The thunder is not there. Markets are making all-time highs, but that is just optics. The underlying fabric of the market in the last 8-10 days seems to be getting slightly weak.
Pankaj Pandey: At 22,000 levels, obviously it is a psychological level, some bit of nervousness is understandable. But our sense is that typically during a month of, say February and March, the market usually tends to correct and from there on, panning out in a better direction. Our sense is in March, probably a 3-4% kind of upside is very much on the cards. Overall, the earning season was quite okay, according to us. We do not see much of a risk to the double-digit earning growth that we have been pencilled in for the next two years. I think a 25,000 target for Nifty remains intact. In fact, market cap wise, we are seeing that while people talk that smallcaps are sort of quite pricey, with 26% earning growth, there are ample opportunities across caps – be it largecaps, midcaps or smallcaps.
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Overall, the setup looks good to us. The only hitch is that people are still questioning what kind of or the quantum of rate cuts we could get especially from the US because our rate cuts also probably will hinge upon the kind of rate cut or what the US Fed will do. That is why I think financials are still soft and not really contributing and we should understand that financials are one-third of the Nifty. So, that is really not contributing at this point in time and despite that we are at 22,000 plus kind of levels at lifetime highs.
I think we still have enough firepower to take Nifty to much higher levels and if election outcomes come on expected lines, then overall we will not be surprised if 25,000 is very much likely on Nifty.
How are you reading into the ups and downs and the rollercoaster ride really when it comes to Zee Entertainment and the Sony merger saga?
Pankaj Pandey: It is very difficult to comment on this stock because one, we were fundamentally expecting that the ad revenue growth should improve in the second half. It has not happened for this company and even for Sun TV, so that is a missing leg. If there are questions on the balance sheet, then it is very difficult to put a fundamental perspective. It is best to avoid this stock till the time clarity emerges. No point in doing bottom fishing in this stock.
What are your buy and sell biases in the market right now? Any stock ideas or themes you are working with?
Pankaj Pandey: It is pretty mixed, but what we are liking is the cement and the infra space. We like the entire tier II cement pack, be it Star Cement, Birla Corporation or even Sagar Cement because in cement companies, the overall valuation gap between tier I and tier II is quite significant and we have seen that it has been a secular improvement in the EBITDA per tonne for most of the companies and most of the companies are also guiding for decent volume growth there. So, that is one segment we like. Then, on the infra side, we have upgraded some of the companies like NCC to a target price of Rs 275. In infra space, the valuations are okay. At 15-16 times, you have visibility for two-three years in terms of double digit growth with margins likely to remain intact and they will also benefit from the fact that if we see interest rate decline in the second half. Infra as a space plus cement as a space is looking good and then we are still liking select PSUs and select stocks across largecaps, midcaps and smallcaps.
Have you looked at any of the stocks within the sugar sector?
Pankaj Pandey: Overall, when you look at most of the sugar stocks, they used to trade at some five-six multiples and now most of them have inched up to lower double-digit kind of multiples and that is largely the ethanol theme which is being played out where eventually we will get to 20% blending. Coal sector is offering interesting avenues to participate going forward. For example, what we like is Coal India.
Now, while primary demand for that is thermal or the end usage what we see in some of the other sectors, but when you venture into coal gasification wherein you manufacture synthetic gas, eventually you can end up producing methanol which also can be blended with petrol and diesel and we have seen China doing it quite successfully.
So, this is another avenue which is opening up for lowering the carbon emission. And mind you, Coal India offers a good dividend yield plus the valuations are quite attractive for next two-three years, one could easily see a double-digit kind of a volume growth. They are already doing well on the volume growth front. Coal India looks like a good play for reducing the carbon emission with valuations in a quite fine shape. We have a target price of Rs 500 on Coal India.
Within capital goods, where do you see opportunity in light of what ABB has done?
Pankaj Pandey: So, one obvious concern with some of these big names like Siemens and ABB is that their valuations are quite high, but you really do not see much of a sell-off happens because nobody wants to sell these companies because while we look at valuations for next two years, they look quite richly valued. But when you look at the next five-seven years down the line, a lot of these companies really look attractive, but fundamentally it is very difficult to put a price to some of these names.
But we like this entire space. L&T is where we have upgraded our target price to 4100. Then, we also like some of the niche players, like say, for example, Action Construction Equipment or even other companies in that space. So, we are trying to play through both largecaps as well as midcaps, this entire capex as a theme. But overall, if we get any kind of a dip in some of these names, one should buy, but the perspective has to be more than two years.
We were wondering where the next cue for the market is going to come from at a time when much of the fundamentals in terms of earnings and important events are behind us now.
Pankaj Pandey: One important parameter which we feel can change the complexion of the market is obviously the stance change by RBI, so at this point of time RBI is still maintaining a stance. If we get some softer data print in US and in subsequent policies RBI also changes their stance, then the entire BFSI as a space can provide the necessary liftoff to the market.
That is one space which has really not been sort of participating much and be it your private sector banks or PSUs are participating to some extent and also the NBFCs as a segment, That segment has yet not meaningfully contributed to the overall levels. So, change of stance by the RBI, probably triggered by some US data print or US Fed action should change the complexion.
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