Two sectors to make money on in 2018: Amit Khurana, Dolat Capital
ET Now|
Updated: Nov 24, 2017, 09.52 AM IST
Talking to ET Now, Amit Khurana, Head Equites & Head of Research, Dolat Capital Market Pvt. Ltd , says he is bullish on cement and two-wheeler sectors in 2018.
Edited excerpts:
Are we still good to go for a last hurrah before the year ends or this is as good as it gets for 2017?
The macro environment remains extremely supportive to make the markets positively biased. That has been the key reason in spite of the earnings trajectory not being as expectedly positive as we did at the start of the year. Whether we get to see new highs this year or early next year, it is just a matter of chance and 200-300 points on the rally but I would not be too bothered about it. But from a macro perspective, in the next few quarters, we definitely believe there is a positive bias to the flavour. The earnings trajectory will improve. The next two quarters you will also have the base effect helping the earnings to show up optically higher but stripping that out of the equation, we still believe that the things are getting better for some of the domestic consumption names and that will continue to drive the market valuations and help them sustained across the board.
What is your big theme this morning? Are you still betting big on consumption and what do you like within the space?
We like some of the names in the staple space and some in the discretionary as well. Let me explain why we like those names. In discretionary space, we particular like two-wheelers and paint companies. We are coming out of almost six to eight quarters of muted volume growth and there is likely to be a lot of pent up demand that we are likely to witness over the next few quarters.
We are way ahead of the street on those numbers and we believe that there could be an upside potential to these. Double digit volume growth on these names would not be an unlikely scenario where we believe it is very likely to be the case and that will drive significant earnings trajectory for these names. Having said that, not that the stocks are cheap but they are quite richly valued and the ability of these companies to sustain market share and drive operating leverage will play out over the next few quarters. So that is one segment that we like.
Within the staple space, we have liked couple of names and essentially that is because we are seeing evidence of volume growth coming back into the picture and that driving EBITDA growth. While you may see some variations because of the reduction in GST rates and therefore the top line growth may turn muted for the next couple of quarters but operating leverage will play a bigger role and we are already seeing enough evidence of the ground level demand turning out for the better especially from the rural side so that is our take there.
Coming back to two-wheelers, again rural has not really done well for the last so many quarters and we believe it is at an inflection point and will start showing up in the volume perk up numbers right price the right launches from the companies which we expect will work out over the next few months. We believe that in the next couple of years, one should watch out for the two-wheeler space.
Give me your top two ideas for 2018, 2017 is almost over.
Well as we discussed, domestic consumption theme is going to be very popular and in that context, let me add remember one. Cement will possibly surprise us on the positive side over the next couple of years. There is a lot of headroom for the companies in terms of capacity utilisations moving up. We are seeing some evidence of the volume growth turning much better in Q2. We saw that and surprisingly you also had pricing gains. If in the next quarter or two, cement continues on this trajectory, it could be the one to surprise in CY18 that is how I would play it.
Secondly also you need to watch out for some of the other related sectors and especially I would say watch out for two wheelers those are the two sectors that I would watch out for without getting into stock names of course.
Edited excerpts:
Are we still good to go for a last hurrah before the year ends or this is as good as it gets for 2017?
The macro environment remains extremely supportive to make the markets positively biased. That has been the key reason in spite of the earnings trajectory not being as expectedly positive as we did at the start of the year. Whether we get to see new highs this year or early next year, it is just a matter of chance and 200-300 points on the rally but I would not be too bothered about it. But from a macro perspective, in the next few quarters, we definitely believe there is a positive bias to the flavour. The earnings trajectory will improve. The next two quarters you will also have the base effect helping the earnings to show up optically higher but stripping that out of the equation, we still believe that the things are getting better for some of the domestic consumption names and that will continue to drive the market valuations and help them sustained across the board.
What is your big theme this morning? Are you still betting big on consumption and what do you like within the space?
We like some of the names in the staple space and some in the discretionary as well. Let me explain why we like those names. In discretionary space, we particular like two-wheelers and paint companies. We are coming out of almost six to eight quarters of muted volume growth and there is likely to be a lot of pent up demand that we are likely to witness over the next few quarters.
We are way ahead of the street on those numbers and we believe that there could be an upside potential to these. Double digit volume growth on these names would not be an unlikely scenario where we believe it is very likely to be the case and that will drive significant earnings trajectory for these names. Having said that, not that the stocks are cheap but they are quite richly valued and the ability of these companies to sustain market share and drive operating leverage will play out over the next few quarters. So that is one segment that we like.
Within the staple space, we have liked couple of names and essentially that is because we are seeing evidence of volume growth coming back into the picture and that driving EBITDA growth. While you may see some variations because of the reduction in GST rates and therefore the top line growth may turn muted for the next couple of quarters but operating leverage will play a bigger role and we are already seeing enough evidence of the ground level demand turning out for the better especially from the rural side so that is our take there.
Coming back to two-wheelers, again rural has not really done well for the last so many quarters and we believe it is at an inflection point and will start showing up in the volume perk up numbers right price the right launches from the companies which we expect will work out over the next few months. We believe that in the next couple of years, one should watch out for the two-wheeler space.
Give me your top two ideas for 2018, 2017 is almost over.
Well as we discussed, domestic consumption theme is going to be very popular and in that context, let me add remember one. Cement will possibly surprise us on the positive side over the next couple of years. There is a lot of headroom for the companies in terms of capacity utilisations moving up. We are seeing some evidence of the volume growth turning much better in Q2. We saw that and surprisingly you also had pricing gains. If in the next quarter or two, cement continues on this trajectory, it could be the one to surprise in CY18 that is how I would play it.
Secondly also you need to watch out for some of the other related sectors and especially I would say watch out for two wheelers those are the two sectors that I would watch out for without getting into stock names of course.
