Hiren Ved is very bullish on auto stocks like Tata Motors and Maruti Suzuki which he feels is a fine way to play the interest rate cycle and the recovery of the economy. With reference to Tata Motors, he pointed out that though the profit warning with reference to JLR was a bit of a dampener, it was a short-term problem. In the medium and long-term, Tata Motors has a very strong product in JLR and the fact that it was increasing the capex meant that it was confident that the volumes would increase in the future as the Global economy started to stabilize.
Apart from the JLR segment, Tata Motors would also benefit from the domestic car business as well as the medium and heavy commercial segment which would pick up over the next few months if the government is able to resolve some of the issues on infrastructure and mining, he said. Tata Motors is one of the largest CV players in the country and there could be an upside two quarters down the line in the CV segment itself Hiren Ved emphasized.
Maruti is also in Hiren Ved’s list of favourite stocks because of its strong product line and marketing muscle. A benign interest rate regime means that Maruti Suzuki will provide strong upside, Hiren Ved opined.
Not surprisingly, auto ancillaries stocks also got mentioned by Hiren Ved as his favourites. He mentioned that Motherson Sumi is his big conviction bet. Amara Raja also came in for special praise from Hiren Ved for its stellar performance.
Public Sector Banks are another of Hiren Ved’s favourite stocks though he advocated the caution of staying with the large caps in the sector (SBI) on the logic that their balance sheet size would be more capable to take the shocks rather than the smaller companies or the smaller PSU banks. He also felt that over a period of time, there could also be gains by the fact that PSU banks may close the valuation gap with private sector banks. He mentioned that one-third of his portfolio was made up of stocks like NBFCs and banks like ING Vysya Bank, Federal Bank, ICICI Bank and Bajaj Finance.
Hiren Ved’s other favourite stocks were in the midcap IT space. He mentioned Infotech Enterprises, KPIT Cummins and Geometric as his favourites because the rupee depreciation made a big difference to their margins and the vertical that they were engaged in (engineering services) was growing. He also emphasized that the valuations are still pretty reasonable and they fit all the other bills in the sense that they do not have any balance sheet issues. They have cash and some of them are doing smaller acquisitions and they could still grow, he emphasized.
Hiren Ved also advocated a close look at companies which were changing their business model or which were correcting their earlier mistakes. Glenmark came in for special mention because they went through a dramatic underperformance due to several difficulties which they had corrected. A re-rating of the stock was taking place, he said.
Tata Global Beverages also came in for praise for being a clear turnaround story. He advised investors to take a position with a 3 to 5 year horizon. He pointed out that the company was moving from being a plantation company with a slow moving business to an FMCG company with a strong branded beverages product. They had made some good acquisitions and also did not have any debt on their books. In particular, Hiren Ved emphasized that Tata Global Beverages would end the year with a turnover of about 9000+ crores and an EBIDTA of about Rs. 900 – 950 crore. The present market cap of about Rs. 8,000 crores (of which Rs. 1000 odd crores was investments & cash) meant that the EV to EBITDA was only about 7 to 8 times while a lot of other players in the sector were trading at much higher EV: EBITDA multiples. He, however, cautioned that the transformation would be slow but expressed confidence that it would be promising.
Hiren Ved also mentioned that he was allocating money to print media stocks (probably HT Media and Jagran Prakashan) because he felt that the media sector seemed to be bottoming out and cyclically, there could be recovery in the ad space. He also advocated buying retail stocks like Trent & Shoppers Stop which had a low market cap of only about Rs. 3,000 crore while the size of the market was enormous. These are long-term businesses with a tremendous value for investors, he said.