CoronaVirus will soon be a distant memory
Anecdotal evidence is suggesting that people are already beginning to shrug-off the impact of the CoronaVirus and are slowly but steadily resuming their normal lives.
In Shanghai, for instance, which was the nerve center of the CoronaVirus a few months ago, tickets for Disneyland are sold out, which implies a return to normalcy.
Similarly, Cruise Ships are reporting a 600% surge in demand.
Even restaurants are thronging with people.
This pandemic is going to change consumer behavior for the rest of history
Wait what? pic.twitter.com/M7sKbGeVjy
— Ben Carlson (@awealthofcs) May 9, 2020
Went out to dinner tonight after my radio show. Restaurant FULL at 8:45pm. This is in South Carolina, which typically rolls up the sidewalks at 7:30.
Hard not to be optimistic when you see what people do when they have a little taste of freedom.
— Jared Dillian (@dailydirtnap) May 14, 2020
Saurabh Mukherjea confirmed that things are indeed recovering across the Globe.
“If you see across the world, look at China, Italy or even other beaten down European economies, the recovery post lockdown seems to be pretty rapid; so two-wheeler demand, car demand, washing machine, fridges, Disneyland sell outs, Airbnb pickups, these are coming back very sharply once people come out of the lockdown,” he stated.
Auto stocks are a good bet
Saurabh opined that the auto sector looks attractive because there is strong data across the world that post Covid lockdown, auto demand roars back.
“The auto sector I would say is probably looking the tastiest I have seen it in five-six years,” he said.
In fact, Hero MotoCorp and Maruti Suzuki, the market leaders, are both reporting robust demand for their products from consumers.
hero moto surges 4%
reopens 1500 retail outlets across the country
1500 retail outlets contribute to 30% of hero motos total retail outlets
sold 10000 units of motorcycles after reopening touch points
hero moto also resumes manufacturing operations at 3 plants @HeroMotoCorp— Sonia Shenoy (@_soniashenoy) May 11, 2020
Slow reboot for @Maruti_corp. 2,300 cars delivered since sales restart of operations. Company has received 5,000 bookings from digital platform says Chairman R C Bhargava. 1,900 workshops opened too.
— Hormazd Sorabjee (@hormazdsorabjee) May 13, 2020
We can also consider tucking into auto ancillary stocks like Amara Raja and/or Exide because they will face humongous demand from OEMs as well as from the replacement market.
Auto stocks on fire
Best play probably will be battery stocks (Amara Raja and Exide)
– Majority cars are standstill due to lockdown
– Most cars will need new batteries as majority may be dead due to non use
– Auto companies have started so OEM demand will kick in— Darshan Mehta (@darshanvmehta1) May 11, 2020
Forecasts about bleak GDP forecasts are useless
Saurabh cautioned us not to be unduly influenced by the bleak GDP forecasts because there are all backward-looking and not forward-looking.
“That GDP is not going to grow this year is obvious. We are going to lose April, May and most probably June as well. But the question is can we rebuild this economy from August, September, October and I think based on what we are seeing in other countries, the answer looks to be almost an emphatic yes,” he advised.
“Do not get caught up in the bleak forecasting community who are making forecasts which are obvious. If you shut down the economy for two months, obviously you will have bleak GDP growth but that is neither here nor there. What the utility of those forecasts is, I fail to understand at this juncture,” he added.
Saurabh pointed out investors who had dared to buy stocks on the worst day, when the Sensex plunged to the lower circuit, are basking in massive gains of nearly 25%.
“From that day when the market hit circuit down, we were very optimistic. The market is up about 25% from that day and the overall macro situation is a lot better than the kind of whole bleak forecasting industry would have you believe,” he said.
Some industrialists are trying to arm-twist the Govt for concessions – Don’t be worried by their grim tone
Some wily industrialists like Sanjiv Bajaj are taking advantage of the scenario to arm-twist the Government and obtain concessions and relief packages for their respective sectors.
Saurabh advised us not to be influenced by their grim statements about the state of the economy.
“Now coming on to Sanjiv Bajaj’s comment vis-à-vis RBI line of funding. As a smart businessman, obviously he is playing from a position of strength and he is urging the RBI to lower the cost of funding further for NBFCs. It is something that will help the whole industry but it will also help the market leader Bajaj Finance disproportionately. Bajaj Finance alongside HDFC is another unquestioned market leader in the NBFC world. They will benefit disproportionately from an RBI line of funding,” Saurabh stated.
Three stocks which are looking “incredibly juicy and attractive”
It is obvious that stocks which have been pummeled the most (without an adverse change in fundamentals) will the first ones to surge when normalcy returns.
These stocks are Bajaj Finance, HDFC Bank and Kotak Bank.
“Specifically the sorts of stocks that we love to buy like Bajaj Finance, HDFC Bank, Kotak Bank, which I have advocated for a long time on your channel look incredibly juicy and look incredibly attractive at these levels,” Saurabh stated.
He also pointed out that this is the first time in his distinguished career of 12 years on Dalal Street that he had seen HDFC Bank at these bargain basement levels.
“If you are looking at people returning to work in the second half of May and normalcy in demand returns by July-August, the overall market looks attractive; specifically high quality financials in the NBFC world like Bajaj and in banking, HDFC Bank and Kotak,” he said.
Saurabh Mukherjea says don's get caught up in the near term forecasts, focus on long term. Bajaj Finance, HDFC Bank, Kotak Bank look incredibly 'juicy', attractive at this level
Premium financials in NBFC space, auto look very attractive— avanne dubash (@avannedubash) May 11, 2020
Why is Bajaj Finance so “incredibly attractive“?
Saurabh revealed that Bajaj Finance is a big holding for the Marcellus PMS Fund.
He gave a detailed commentary on why he finds it “incredibly attractive“.
“In very simple terms, any company’s stock price broadly discounts the next 20 years of profits in very simple terms. Bajaj Finance is almost halved; it basically suggests that the market is implying that Bajaj Finance would not make money for the next seven-eight years. That to me does not make any sense. Why does it not make sense? If we look at the secondary yields in the CV markets, both on three months commercial paper and on one year commercial paper, Bajaj Finance alongside HDFC is trading at the lowest PEs,” he said.
He also pointed out that if one looks at the liability franchise of Bajaj Finance, a little more than 92% of the liabilities are locked in for three to five years, which means that it will not require funds at high cost from the market.
He also pointed out that Banks are happy to lend to premium NBFCs like Bajaj and HDFC, so there is no dearth of funds, should the need arise.
#CNBCTV18Market | COVID-19 may drive a marked change in spending patterns, may see ‘in-house’ spending being favoured vs ‘out-of-home’ spending, HSBC says, maintains BUY on Bajaj Finance pic.twitter.com/PGfEhBWeM3
— CNBC-TV18 (@CNBCTV18Live) May 14, 2020
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