Investors' can hold HUL post March quarter results; sell Tech Mahindra: Umesh Mehta

HUL’s resilient business model, low debt and healthy balance sheet would help steer the company through these tough times, investors are advised to hold this stock from a long-term perspective, Umesh Mehta, Head of Research, Samco Securities, said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpts:

Q) A strong day to end the week! The Sensex is back above 33,000 while Nifty50 reclaimed 9,800. What is fuelling market rally on D-Street?

A) Indian markets cheered on hopes of another possible fiscal stimulus from the Indian government. Emerging markets like Thailand, Malaysia, and developed markets like the US have supplemented their economies with stimulus packages in the range of 10-15 percent of their GDP which has triggered markets and brought about the strong retracement from the lows. Hence, the current market rally in India is nothing more than a globally orchestrated rally.

Umesh Mehta

Head of Research|SAMCO Securities

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Q) As we close the month of April on a positive note after a massacre in March – how is May likely to pan out for investors. There is a very popular Wall Street adage ‘Sell in May and Go Away’? Do you think we could hold onto gains if not why?  

A) Given that Indian markets’ sentiment is largely driven by sentiments in the global markets, especially the US market, the month of May could be possibly driven by sentiments in the global economy.

One cannot ignore the fact that Indian market participants are dearly waiting for a big fiscal stimulus package 2.0 and given the limitations government have with its finances, not much is expected which can keep prices under pressure.

To add to it, once the lockdown ends, bourses might factor in the ground reality which isn’t rosy.

A) Quarterly earnings of HDFC Bank, Axis Bank, and IndusInd Bank were not as bad as the Street expected. And therefore, the rally which was witnessed in financials was an event-driven relief rally.

In addition to this, the management of Axis Bank stated that only 10-12 percent of the bank’s borrowers by number have opted for a moratorium and HDFC Bank too provided similar numbers; however, they are hopeful that if lockdown gets lifted quickly the ground level situation may start to normalise.

Moving on to the auto stocks, even before this lockdown, the auto industry was going through its worst phase, but nonetheless, it is expected that an adequate government stimulus might address this sector’s difficulty.

Given the oversold levels with the slightest news of production approval at some factories, investors jumped right in to accumulate stocks at reasonable valuations.

A) Going head, the markets would largely take cues from any updates on the lifting of the extended lockdown, quantum and coverage of the possible stimulus package from our government as well as domestic mutual fund’s behaviour from the reported inflows and outflows for the month of April.

A) HUL’s quarterly show missed Street estimates on an overall front and the underlying volumes contracted by 7 percent as demand fell due to the COVID-19 lockdown, the highest decline since demonetisation quarter.

The profit declined 1.20 percent on a YoY basis to Rs 1,519 crore for the quarter ended March whereas revenue fell 9.4 percent to Rs 9,011 crore largely due to the disruption in supply in March.

However, HUL’s resilient business model, low debt and healthy balance sheet would help steer the company through these tough times, investors are advised to hold this stock from a long-term perspective.

Tech Mahindra disappointed investors with its quarterly numbers wherein profits fell around 30 percent and revenue declined 1.70 percent. During the year, the company’s margins narrowed 450 basis points to 7.70 percent.

The pandemic and consequent lockdown in India and across the globe has disrupted the IT industry which will impact Tech M’s revenue too. It would be advisable to SELL Tech Mahindra as there are other large players which would provide better-investing opportunities going forward.

A) Since Reliance Industries is a conglomerate, certain business segments have performed and surpassed expectations while some have disappointed. Excellent performance by Reliance Jio with ARPU coming in at Rs 130.6 has further offset the poor performance of Petrochemicals and Retail.

But, on a whole, the result was largely in line with the market’s views. However, the rights issue ratio of 1:15 at a price of Rs, 1257 per share is slightly overpriced which might cause a challenge to attract retail investors, and hence there can be a slight dip in its stock on Monday.

Investors holding it for a long term horizon of 3-5 years can remain invested as the efforts to reduce debt, digital growth, deal with Facebook, etc. are all positives for the company.