Buy on dips & Nibble on Info Tech stocks:
Definitely in the buying mode but looking at the way the markets have corrected, it makes sense to actually remain on the sidelines for a few days. Let us see how the market moves but clearly as I mentioned earlier, the large cap IT names have fallen and since Infosys shares were sold by the founders today, this should be a good opportunity for companies like Tech Mahindra, HCL Tech.
These are all strong IT players and have very strong order books. So this should be used as a opportunity to actually start nibbling in certain small quantities.
AIA Engineering – very strong order book, hefty dividends & earnings:
AIA Engineering is weak because some workers have gone on strike but if you see the business model, it is one of the few companies which has got a very strong order book. Almost 70 per cent of its business comes from the global market.
Today’s event is negative for the stock but if one takes a medium to longer term view, this stock has actually been rewarded by the management with hefty dividends and clearly going forward, FY16 would be a year to watch when we could see good amount of earnings growth kicking in
Torrent Pharma – Strong compounded earnings growth expected:
Torrent Pharma is a better name. Clearly, the stock has seen a good up move since Diwali around 800 odd to around 1,100 now. But still if you look at the earnings traction and the kind of benefits which would flow, the kind of businesses they took over from Elder Pharma; my sense is FY15 and FY16 we could see very strong compounded earnings growth. So even at current level, somebody has a year or year-and-a-half kind of time horizon, this could be a good bet.
Zydus Wellness – high ROE & no fear of equity dilution:
Zydus Wellness continues to be market leader in the sugar-free kind of segment. The kind of ROE this company has generated over the last couple of years, going forward also in terms of dividends and in terms of ROE, this is going to continue. So despite these kind of expensive valuations, these stocks would continue to do well because the fear of any equity dilution is not there and they have been extremely investor friendly to the shareholders. So I would say that on any decline, these are good portfolio picks which could actually generate good wealth for investors.
NBCC – good way to play Namo’s 100 cities theme:
If you take a time horizon of next couple of years, the kind of balance sheet and the kind of working capital management NBCC manages, it has a negative working capital, they are zero debt, have a reasonably large kitty on the balance sheet and more important with Mr Modi’s dream of this 100 smart cities, clearly this is one stock which possibly could benefit significantly. Clearly, maybe for a couple of quarters, there has been some lumpiness on the top line and profitability but if you see the business model and the kind of order book which they currently have, my sense over the next couple of years this could possibly rise significantly even from the current levels.
Bharat Electronics – best in defence companies:
Among the pure play defence companies, Bharat Electronics is the best because of the kind of domain knowledge, the kind of order book and the kind of monopoly this company enjoys in the defence space. Though the stock has run up significantly and valuations are definitely not cheap, my sense is there are very few companies like Bharat Electronics available and from an FII point of view any global investor would like to invest in one of the best companies where technology as well as the traction from the defence business is going to grow exponentially. So Bharat Electronics definitely at any decline possibly investors should definitely look at it as a nice core portfolio pick.
Infosys – strong fundamentals. Weakness due to stake sale is an opportunity:
The sell off by the founder family has actually created a little kind of disappointment in terms of the price but my sense is these are events which do not impact the earnings or the longer term potential of the company’s business.
These events would play off over a period of time and if you look at from a slightly longer term perspective, despite the fact that bonus shares have also come in the market, this 4 per cent stake sale has happened. The fundamentals remain quite strong and somebody who wants to build a long term portfolio should use this weakness as a good opportunity to enter at the current levels.
We have seen these kind of events happening in other major stocks like Hero MotoCorp, where private equity investors have actually disposed off shares in the market and there has been a bounce after a few days. So overall the sector outlook continues to be positive as we are looking at a stronger US dollar and a weaker rupee. This should play out in FY16 and this would be a good time to look at large cap stocks like TCS, HCL Tech or a Infosys.
Midcap IT space – buy companies with good business model & cash on B/S:
Within the midcap IT space, stocks like Hexaware or even Persistent, in terms of the quality of the management, I would say that any weakness should be used as an opportunity. Short-term corrections will happen but if you look at the business model and the kind of cash these kind of companies possess, they are much stronger.
I would say that once we have some more positive macro numbers coming in from US, you will have a weaker rupee and the overall business scenario from the US markets for 2016 could be a lot better. So it is a matter of another two quarters but any weakness should be used as an opportunity to buy.
Jet Airways – “cash burn” & wafer-thin business:
All airline companies would benefit from falling crude and falling ATF prices. But to get this on a sustainable basis is going to be a very difficult call. Already, the stock has moved up quite significantly in the last five-six trading days. So from a value perspective, I would definitely not like to chase the stock at the current level.
Maybe I have been from a short trading kind of positional view if the stock corrects, probably this could possibly be a good kind of risk reward kind of stock but clearly the business is very wafer thin. It is a cash burn business so I would say that there are many more companies which actually would benefit more significantly from crude price fall. In the short term, as long as crude prices remain soft, you could see probably the coming couple of quarters obviously more better for Jet in terms of the EBITDA margins but clearly still long way before the balance sheet gets cleaned up and the debt gets reduced.
United Breweries and United Spirits – open offer, corporate action, takeover etc to be watched:
For United Spirits, more than the fundamental story it is only the brand and the possibility that in future Diageo could possibly look at a complete delisting of this business. Clearly, this is not a possibility which can be written off but if at all that happens obviously the potential for a big open offer at a very significant price could happen. Recently, we at the AGM saw that 9 out of 12 resolutions were rejected by some minority shareholders. So possibly some part of objectivity has been taken by the minority shareholders but clearly United Breweries is a stock which has got lot of crossholdings across Mallya companies, got lot of assets. So obviously any news about kind of a corporate change or may be a takeover probably that is the reason the stock is up today but nevertheless purely on fundamentals one would like to take a call only on a decline not at the current level.