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October onwards we will see the best rally in a long time: Sanjiv Bhasin

ET Now|
Updated: Jul 11, 2019, 12.38 PM IST
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Highlights

  • Real money to be made in pharma and industrials.
  • Positive on corporate banks, PSU banks and some midcap banks.
  • July onwards, we are bullish on consumption.
July onwards we are very bullish on consumption and think durable, discretionary and staples will do extremely well for the second half of 2019, says Sanjiv Bhasin, Executive Vice President, IIFL Securities. Excerpts from interview with ETNOW.

A Economic Times report says that the FPIs are mulling going corporate but they are saying the change would not be easy and that is when one of the overhangs for us.
It is the perfect storm. If you are looking at stocks doubling in the next two years, why are you tinkering around with 2% to 3% tax and if you are uncomfortable with that, it is better you withdraw money and go and invest in two years 2% yields on the US treasury. In the short run, that is an opportunity.

There was nothing as such negative in the Budget. We thought it to be a very consumption-led Budget. You are not highlighting that the rupee at 68.50 is at a six-month high while bond yields are at a three-year low. That can only mean the next 12 weeks will see the bottoming out of all indices. We are very bullish with the three-month view onwards and we think October onwards we will see the best markets rally in a long time. Use this fall to buy and the pessimism is very much overdone.

Do you think markets are pricing in a recovery for some of the large corporate banks or do you still think there is an element of surprise over there?
There is a big element of surprise because you are not aware you are just seeing the frontline numbers on NCLT and IBC. I know for a fact that thousands of corporates are settling their accounts across the board and what were once termed as NPAs will now become write-backs. So, we are extremely positive on the corporate banks, the PSU banks as a whole and some of the midcap banks.

So ICICI, Axis, SBI from the front line, SBI Cap, Bank of Baroda, and Canara Bank on the PSU side but it is DCB, Federal Bank, IDFC First where we think numbers will be much higher than estimate. Also, on a contrarian play on IndusInd Bank, the completion of merger with Bharat Financial will give it a pan India presence on financial inclusion and micro finance space.

What do you do with select PSU banks, leave apart SBI? Is there some value emerging especially after the Rs 70,000-crore PSU recap?
Well yes that added to the bond yields which will give them huge treasury income and the bigger beneficiaries will of course be the largest bond holders -- that is SBI, Can Bank and Bank of Baroda. But we see a follow down effect in a stock like say an IDBI. It has gone through a massive restructuring. LIC has infused much more capital their new lending book will be 20 times the base capital and so on. There is a whole host of stocks which can do well. On the PSUs, I would still recommend the CPSE ETF. This government launch is a very innovative idea where they are not going to put pressure on individual stocks. If you are going to be a systematic investor in ETFs, in the next two years you will be laughing your way to the banks because there is going to be a lot of unlocking of value for select PSUs and that CPSE ETF fits the bill perfectly.

What is happening to the oil marketing companies (OMCs)? How are you looking at them in correlation with crude oil prices?
Crude oil has been in this range and actually crude strengthening means that global growth maybe slightly better. Mots of the oil marketing companies have been market neutral. They have had a very good run up. I still think crude is headed lower maybe by the end of this month because a) the demand-supply mismatch is more to do with geopolitical tensions; b) Free market pricing has made HP, BP, IOC very prone to an upside but they are going to be market neutral. We would be more positive on some of the gas utilities.

We think the selloff in GAIL is overdone and now the government is talking of selling its stake beyond 51% and letting private partnership come into GAIL on the pipeline side. We are missing the woods for the trees. If that happens, this could be a re-rating of GAIL on the upside. We know they have got a lower end of the price range hike from the PNGRB. But that was just one offset. We still think GAIL can easily give you a 10% return on equity in the next two-three years. We are very positive on GAIL, IGL and Petronet LNG.

Do you have a view on PVR?
It has done relatively well in a market which has done nothing. I still think the competition is intense on the Netflix side and we think Jio is coming out with more launches. So, there may be more footfalls, but margins are going to be a problem.

If you have some of those rulings on add-ons being restricted, then that could be but the stock has been a relative outperformer and it is a small midcap stock. If you are holding it, you should own because we think the best of consumption is just going to start. July onwards we are very bullish on consumption and think durable, discretionary and staples will do extremely well for the second half of 2019.

What do you make of the TCS numbers? What are you expecting from Infosys?
The numbers were lukewarm. What used to be a tailwind is rupee and wages are now a headwind. The input costs have gone up and margins have fallen. So for me IT is no longer the defensive space I would rather put my money on select pharma stocks where I see potential of them adding much more delta. We think the strength of the rupee notwithstanding we would rather be more bullish on industrials.

TCS may standout as a stock and has been one of the biggest wealth creators in the last three years but the best may be in the price. We are also seeing some slowdown on the BFSI space globally.

Real money will be made in pharma and industrials across the board in the Indian context.

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