Sanjiv Bhasin, Director, IIFL Securities, says HDFC Bank has been his contrarian bet which has played out perfectly. Among his top three midcap bets are UPL, Persistent Systems and Dhanlaxmi Bank. In real estate, Bhasin says, “add DLF and Godrej on correction. However, for the real estate play, Indiabulls Real Estate is our top pick.”

Let’s start with financials. HDFC Bank, Bajaj Finance quarter after quarter, have continued to surprise with good growth. Has HDFC Bank woken out of its slumber now?
Sanjiv Bhasin: I have been a contrarian for the last three months when HDFC Bank results saw the biggest selloff ever. At two-time price to book, you had priced in all the negatives and now you have a fall in the CDR ratio, improvement in deposits which are at a record high and we know that the deposit or the liability franchise has been in a little bit of weak because of more inflows into mutual funds and such. But they have found a very good base. The bank is doing extremely well on all parameters whether treasury, whether lending or whether the loan book and I think this was a once-in-many years opportunity to get a two-time price to book. I have told on ET Now that Rs 1350 will not be tested this year. So, we are still holding our ground that this is one of the pedigree stocks which can outperform quarter on quarter results and the other uptakes will go. This is the time to be in largecap private banks, take some money and chips off the PSU banks because of higher yields and higher oil prices which could see the deposit franchise lag. So, we are overweight on HDFC Bank and a disclosure, this has been one of our top picks in the last three months.

What is the best way for investors to play the entire metals rally? For gold, do you think it is best to just buy that asset directly or are even the likes of Muthoot, Manappuram, Kalyan Jewellers and Titan are good bets because Muthoot has already run up to almost Rs 1,650 thereabouts from Rs 1,350 that it was trading at earlier?
Sanjiv Bhasin: We live in strange times. Bond yields are higher, gold is at an all-time high. Stocks everywhere are doing extremely well globally and some asset class has to give. We saw a picture of that yesterday as people are now wary of what the Fed will speak out of turn and keep changing the tables of maybe June coming to September and so on.

But gold has been a far outlier which nobody expected. We still think Titan and Muthoot and Manappuram could be very good plays but look at the smaller plays. Yesterday, the numbers from a bank called Dhanlaxmi were very strong. Dhanlaxmi is a direct proxy to gold coming in from the Kerala route. Their 13.5% business now is gold lending and as gold goes higher, franchise level and your NPA levels fall and these have 2-2.5% yield on a monthly basis.

So, Dhanlaxmi Bank is something I would play. As a disclosure, this has been in our portfolio from Rs 32-33 level. One cannot get such a big franchise at Rs 1,000-crore market cap and HDFC Bank and Muthoot would be ideal plays. Titan on corrections could be an added play because we know this is a slightly quiet season. Once again, the celebrations and wedding start, Titan will again be in the limelight.

Given what the market was doing behind while you were in London, I am sure it also gave you a lot of time to think through as to what one can add to our portfolios right now, considering that this seems like a multi-year bull run. Give us some specific ideas to work with.
Sanjiv Bhasin: Firstly, let me tell you, HDFC Bank was my contrarian play, that has played out perfectly. Indiabulls Real Estate, which I have been advocating from Rs 90, 100, 110, hit a new high. The company is raising capital today. There will be a turnaround because real estate is doing well. We still think Indiabulls Real Estate is the most undervalued inventory stock and once this merger with the Embassy goes through, I think the date is now 24th April, you will see a re-rating of that stock.

But now we are looking at two-three midcap ideas. First is UPL. It is the largest specialty chemical company in the country, one of the largest in the world. They have also had a problem because they had debt of about $3.7 billion, which was in the process of getting divested, either through a right or some subsidiaries. Now, there is talk of Advanta, which is their global seeds arm, seeing a divestment that is valued at close to $4.5 billion. So, even if there is a 20% dilution, that will substantially reduce the debt. There would not be any need for raising capital.

Secondly, their other businesses, particularly the pesticide and the agrochemical, are doing extremely well and sunflower and canola prices have risen. Secondly, I am very positive because their direct outflow into Argentina, Brazil is seeing a huge attraction and they are actually a beneficiary of a weak rupee. This stock trades at a market cap of Rs 37,000 crore, which is just two-and-a-half, two-time price to sales and at a 1.2-time price to book. This is one stock which I can put my money on to bet that this can even double in the next two years and also the valuation is giving me a lot of comfort as specialty chemicals will be the fastest to bounce back, particularly a large part of their businesses. My second pick would be Persistent Systems. I have been very bullish on Persistent for a long time. The numbers are due on the 21st. It will be one of their best quarters. Their BFSI space and the new product launches are doing extremely well and I think as a proxy to the rupee weakness, Persistent fits the bill to be one of the better midcap performers. We think you can even scale 4,500 in this stock, so that is a good place to hide.

Last but not least, Dhanlaxmi Bank is a very good proxy for increasing CASA and their gold business, now they have 13.5% of their business is gold loan, which as the business grows well, will again be an outperformer. These are some of the names. HDFC Bank continues to be one of our top picks and we would use all declines to buy.

I also want your take on the real estate pack. Macrotech has not only managed to achieve their guidance in terms of the pre-sales, they have managed to beat it as well. Of course, the best quarterly performance, the pre-sales are up 40% on a year-on-year basis. How long do you think this rally can really continue?
Sanjiv Bhasin: Because of gold, the wealth effect in India is playing out extremely well and where will you get assets cheap now? Real estate has been the best-performing sector after lagging for 10 years. DLF hit Rs 900 maybe 10-15 years and now it is coming back; so is Godrej. Like I said, Indiabulls Real Estate is one of the best proxies which you have. Their market cap is just about Rs 6,500 crore even after this move and the type of inventory they own, particularly in Maharashtra and Delhi, in NCR, this stock can easily be re-rated to be even more than double once they get the merger done and there is infusion of capital by the promoters three-four large players including Blackstone.

So, be selective, try and catch stocks which are looking good. We suggested some names. We did take some profits in DLF, but we would like to add some of DLF and Godrej on correction. However, right now, for the real estate play, Indiabulls Real Estate is our top pick.

But what about some of the recent IPOs? Did anything catch your eye or anything that you like within the new-age tech space?
Sanjiv Bhasin: We chased Zomato from Rs 50 and now it is about close to Rs 185 – all-time highs. I think it is a consensus play. I would not chase it at this price. We would still be little in a profit booking mode there because a large part of that rally has already played out. We would rather concentrate on the banks and we think that private banks now are giving you a very good opportunity. Look, if credit has to expand and inflation is moderating, particularly in the Indian context, then I think some of these stocks can do very well.

Like we suggested, some of the specialty chemicals as a sector, SRF has bounced back very strongly, UPL we think can be easily re-rated to even double from here over the next two years and some of the IT stocks these are looking extremely attractive at this price. But like you said, we have to be a little aware of the point that now some of these valuations on gross sales value or whatever metrics you take are trading at very-very high levels and even though the market is at new highs regarding these new-age stocks, I would be a little wary and take some money off the chips.

The consumption side as well is on the lookout today, though on the downside. Citi has come out with a note wherein they are opening a downside 90-day catalyst watch on both Page Industries as well as Bata. Would you think that it is best to avoid consumption right now till you actually see a meaningful recovery come by?
Sanjiv Bhasin: No, no, we have Nestle, Bata and Patanjali as our top picks and there is a big election coming. You are aware of the spending patterns. People have moved from the Campus to the Bata. Bata is a contract manufacturer and their costs are reducing on a quarter-to-quarter basis. I think sales are just round the corner. Footwear is a necessity. I would rather use any decline to add on to Bata and Patanjali. Nestle has been our top pick. They have got an award on the Maggi noodle side, I think that will be another positive.

If we are expecting that rural incomes will do well, rural incomes are not just two-wheeler sales, they will also spread to the basket because the aspiration to grow into newer brands is now very popular in tier II, tier III and the lower strata. So, I continue to think Bata can be an outperformer from here. You will have to ignore one more quarter of maybe lacklustre numbers, but as a brand you cannot get a better name than Bata.

What is the view on pharma? What are the top bets within that? Anything interesting that has come up on your radar?
Sanjiv Bhasin: Yes, before that let me add one more real estate name which we are very bullish on. As a disclosure, we have added this stock when we have had it since Rs 12, 16 now, 32 also we thought that is Hindustan Construction. And we think Hindustan Construction has bypassed a lot of this frenzy for stocks which have got real estate assets and we think Lavasa has been cleared and now we think that all the uncertainty has been laid to rest. This stock can easily double from here and still look cheap because of the inventory which they had. They are in the process of reducing debt. So, if you are looking for a real estate name, it would be HCC.

The other part which you asked, I continue to be very bullish on Sun Pharma, Dr Reddy’s and Lupin. Lupin is our dark horse play over there. We think that could be a very strong performer on the back of results and their generic side pricing power which they have now got in the US. So, Lupin, according to us is a very strong contender for giving more than double digit returns this year. Sun and Dr Reddy’s are two other picks which we have in our portfolio.