We do not expect a broad based rally (as witnessed in 2017) but select companies with improved financial performance, strong growth prospects, and sound management would outperform, Jayant Manglik said
We believe the government would increase its focus on infrastructure spending, which would be beneficial for sectors like real estate, cement and capital goods as well, Jayant Manglik, President - Retail Distributor, Religare Broking Ltd., said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q: After a roller-coaster week for Indian markets, what is your advice to investors and traders?
A: The recent run-up in the markets was largely a result of a strong mandate for BJP-led NDA government at the Centre and rising optimism amongst market participants of a dovish monetary policy.
Having said that, now that the key events are behind us, markets focus would now shift back to fundamentals that have a fair share of problems.
The consumption slowdown is evident as suggested from the recent GDP numbers plus the earnings growth continues to remain below par.
Further, global markets have been volatile due to the re-escalation of trade tensions between US-China and political uncertainty in the UK.
Hence, with stretched valuations, concerns over NBFCs and unsupportive global cues, markets are expected to remain choppy until the Budget.
Although, the recent correction in crude oil prices could limit the downside for the markets. From a long-term perspective, we continue to remain positive on India’s growth story.
We recommend investors to accumulate quality stocks with sound fundamentals and strong management on every correction. We feel Nifty could hover in 11,600-12,000 range in the next week.
Q: With lingering growth concerns and NBFC crisis, concerns over the mid & small-cap space are far from over. What are your views?
A: The broader indices have witnessed some respite in the recent months led by improved domestic sentiments and value buying witnessed in select pockets.
However, the recent consumption slowdown has raised concerns over the growth prospects of many mid and smallcap companies.
Hence, we do not expect a broad-based rally (as witnessed in 2017) but select companies with improved financial performance, strong growth prospects and sound management would outperform.
Q: What should investors do with NBFCs stocks?
A: The recent default by DHFL on interest payment to its debenture-holders followed by its rating downgrade has raised fresh concerns on liquidity and growth sustainability of NBFCs.
Until any concrete steps by RBI and government are announced to resolve the NBFC crisis, we feel it is better to avoid taking any exposure to this sector, especially in smaller NBFCs, which have a weaker balance sheet and run the similar risk of default going forward.
However, one can consider investing in larger and better-rated NBFCs like HDFC, Bajaj Finance and LIC Housing Finance, as they would be less impacted by the on-going issue due to liquid balance sheet thus enabling them to focus on growth going forward.
Switching over a part of the NBFC portfolio from smaller and risky NBFCs to private sector banks with strong growth prospects would certainly not be a bad idea.
However, it is to be noted that most of the quality large/midcap private sector banks have run up significantly and are trading near highs. Hence, we feel that investment in a phased manner would to be a prudent approach for margin of safety and better returns.
Some of the prominent names that can be considered for investment include HDFC Bank, ICICI Bank, Axis Bank and RBL Bank.
Q: What is your view about Nifty Bank for this week?
A: In line with the benchmark index, we feel that the banking index too would spend some time here, with a bias on the positive side.
We suggest focusing mainly on the private banking majors for long trades while the PSU banking counters may continue to underperform.
A decisive breakout above 31,650 in Nifty Bank would trigger a fresh up move else consolidation will continue.
Q: What are the sectors and stocks you would recommend at this point?
A: Amongst the sectors, given the recent slowdown in the consumption sectors (auto, FMCG, consumer durables, banks) and the correction witnessed in the stocks, we feel it provides a good entry point for the investors to play India’s consumption story.
Additionally, we believe the government would increase its focus on infrastructure spending, which would be beneficial for sectors like real estate, cement and capital goods as well.
To conclude, we believe that one should play domestic centric themes as they are likely to be a key beneficiary of government spending.
We remain constructive on the long-term growth prospects of these companies that are relatively safe investment picks and offer healthy upside potential in the coming months.
While GCPL’s financial performance over the last three quarters has been subdued, we expect the volume offtake in the domestic business to improve, led by an anticipated revival in demand and company’s efforts towards brand building and product innovation.
Further, with new launches and effective marketing initiatives, the growth trajectory could gradually improve in the overseas business. The recent correction in the stock price has given a good entry opportunity to the long-term investors.
From a long-term perspective, we maintain our positive view on Maruti considering the easing of macro headwinds (currency) and the company’s leadership position in the passenger vehicle segment and continued strength witnessed in rural markets.
Further, lower interest rates augur well for the passenger vehicle industry given its high finance penetration levels. The recent muted financial performance has largely been factored in the stock price and the valuations look attractive at current levels.
Cummins is a leading manufacturer of engines and other power generation products. The company has reported strong growth in the domestic market in recent quarters.
Further, pick-up in demand in all infrastructure segments (construction, water well), increasing penetration in rail and marine and high demand from data centres will drive the growth in the domestic market.
Further, investments in product enhancements (e.g. new power train solutions) and strengthening market share are the key growth triggers. On the profitability front, stability in commodity prices, as well as value engineering/value-added products shall lead to an improvement in margins.
We expect IGL’s revenue and PAT to grow at a healthy pace, led by network expansion, increasing conversion to CNG and economic benefits of CNG/PNG vs auto fuels.
IGL also stands to benefit from an increase in the award of geographical areas for gas distribution and extension of market exclusivity for city gas distributors.
Further, the recent allocation of distribution licenses in three areas in 10th bidding round to IGL would also aid future growth.
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