First we have to compliment Saurabh Mukherjea and also offer our apologies. In July 2015, he made the grim prediction that the Sensex would sink to a low of 22,000. On that date, the Sensex was at about 28,000. Today, the Sensex is at 24,616, down 12%. Individual stocks have obviously sunk much lower with several mid-caps having lost upto 30-40% of their value.
Saurabh became an object of ridicule for his doomsday prediction because at that time everything was looking hunky dory. What compounded the issue was that Andrew Holland, Saurabh’s colleague at Ambit Capital, made the diametrically opposite prediction that the Nifty would surge to 10,000 by December 2015.
Understandably, the quixotic state of affairs between Saurabh Mukherjea and Andrew Holland irked novice investors and they gave the duo a piece of their mind.
Anyway, to his credit, Saurabh has not been deterred by the criticism. Instead, he has stayed steadfast on the salutary path of making stock specific recommendations for our benefit.
In his latest interview to CNBC TV18, Saurabh has recommended a few stocks which he says are “islands of safety” and will save our precious capital from being washed away.
PI Industries, a well run mid-cap, specialty chemical company, strong cash flows, strong return on capital employed, consistently strong results – my focus will be on names of that sort.
Torrent Pharmaceuticals has held up pretty well and delivered sensible results. So, the consistent focus we have had is strong balance sheets, strong cash flows and ability to deliver reasonably reliable results in a difficult climate does that give you plenty of upside in this market it perhaps doesn’t. Does it protect you from downside pressure? We think it does.
Balkrishna Industries has done well historically in the auto ancillary space but because of the margins pressures coming through, my bullishness is somewhat moderated.
TVS Motors has 7.5 percent margins. It is one-third the size of Bajaj Auto and has almost one-third the margins of a Bajaj Auto but has done well over the last three years in pulling market share. They have got two launches coming in the 150 CC plus space this year, the Victor bike and the BMW bike.
If even one of them does well TVS’s operating margins will see a meaningful change. So, it is a well run company, has a strong balance sheet, has delivered over the last three years and is innovating on the technology front by bringing in a higher quality bike then they had done historically. So, TVS Motors amongst the OEMS could be my way to look at the auto sector rather than fretting about the auto ancillaries at this juncture.
Sectors to avoid:
Saurabh singled out the banking sector as a “must avoid” sector. “The challenge for the domestic economy is growing by the passing quarter and so the banking sector is heading for another ratchet downwards of pain” he said in a grim tone.
He added that the RBI’s insistence that Banks must clean up their books by making adequate provisioning for NPAs means that the banks will report poor quarterly returns.
Saurabh also cautioned that there would be a “meaningful drop” in the GDP growth. “The economy is weakening” and “we should brace ourselves for Sensex 22,000” he said with a chill in his voice.
Now, whether the dreaded carnage does come and if so whether Saurabh’s “Islands of Safety” stocks will be able to withstand it requires to be watched keenly!