Private capex to be game changer; stick to India-centric stocks for next 12-18 months: Sanjiv Bhasin, IIFL
Cement, construction, capex, corporate banks are going to lead from the front, says Bhasin.
Could Reliance signing this term sheet with Brookfield as reported by The Economic Times be a material and sizable positive considering the valuation at $15 billion? We are talking about almost halving the debt on their books?
Finally, the sun is shining for Reliance. First, came the Saudi Aramco deal for selling part of their energy assets and now they are trying to monetise the Jio towers. It is a very big positive in the sense that Reliance is now going to try and become a lean mean fighting machine in the sense they realise that they are slowly transitioning into a technology company and there is going to be a huge capex involved there. Slowly but surely, they are trying to get the financialisations on the right path and I see no let up in this.
Reliance is truly on its way to becoming a Rs 10-lakh-crore market cap company in the next one year. All declines should be used to buy. We have a one-year target of Rs 1,500. Its underperformance in the recent months may start to see an uptick again in Reliance, given that both the monetisation on the spectrum side and on the energy side is on the cards in the next six months.
What is happening in crude on the back of the OMCs cooling off yesterday? ONGC was showing a lot of strength. Overall, it is going to be positive for India but on the back of the trend that we are currently seeing, if crude were to continue to cool off, would you be taking a closer look at some of the names impacted by that?
We have had a contrarian view on most of the OMC. They have smartly rewarded in the last four months. I still think HP, BP, IOC are wonderful businesses and if crude is going to be a tailwind, now with prices slowly but surely drifting below $60, it is a win-win situation.
Also along with that, look at the strength in the rupee. We think that free pricing has been extremely positive for them. There will be regular bouts of profit booking but we still think there is a 20% upside even after such a sharp run-up in some of the OMCs. We are also very positive on select gas utilities and IGL, MGL on decline remain our top pick.
We think the selloff in GAIL may be overdone. Even with a 4% rise in PNGRB pricing, they can still give a 10% CAGR over the next two years cum bonus. At Rs 300, GAIL also becomes an attractive buy. So, OMCs, gas utilities all are in a very very sweet spot right now.
Would you look deeper into IT, perhaps into some of the midcap names?
The rupee which was a tailwind, is now a headwind and globally the environment for IT and BFSI space is not all that alluring. We want to play the India story given the budget and the underperformance of PSUs. We think alpha will really be created by cement, construction, infrastructure. In the short run, the volatility and protection of capital will be seen by IT given it has been a bellwether.
If I can take two names, it would be TCS and HCL Tech. HCL Tech has moved up very sharply from those Rs 950 levels to Rs 1,120 but we still think that it is the best executor on the BFSI space. TCS itself has become a prima donna. It has become the largest market cap. If you want to be in these stocks, these two merit ownership. However, any pullback now in the rally at above 12,000, it will be the broader market which will lead and IT may tend to become a market performer to slight underperformer going ahead.
What is your perspective on DHFL? They have managed to avert the defaulter tag after making that due payment of Rs 960 odd crore to NCDs. Does that make them worthy of investment?
You know where the problem is. We have still not filled the void created by IL&FS. The short term commercial borrowing is still in a limbo and the competitors have gained because of some of these errant promoters. Over-leverage is not a bad word but if you had a very good run in the last five years, adequate checks and balances should have been on the cards for the likes of Indiabulls or DHFL or Zee.
ADAG came and clarified. Words will not materially change it. You got to show the money on the table. We think there are enough other plays which are going to make up for that and already corporate banks are in the best of shape as they take on the loan portfolios of most of these debt saddled players. So ICICI, Axis, SBI would be the key over there.
Among housing finance companies, it will continue to be Bajaj Finance. LIC Housing Finance can be further rerated, given its pedigree performance and now the book size is increasing with NIMs also expanding. The other two would be Cholamandalam and HDFC if you want to stick with the top names. As a trading bounce, DHFL definitely could see some rearguard actions. You could see the stock maybe trading towards Rs 120 in the next three to four months.
The next big trigger would only come from the budget. How big an event could it turn out to be from an equity market standpoint?
Before the budget, you have Trump and Xi meeting at the G-20. If anything, the Dow has seen the best rally in the last one year in June. The Dow is up 1,600 points in the last 10 days on the back of Mexico sanctions getting averted. We will have to keep our fingers crossed that Trump does not wake up on the wrong side on the 29th and if you have a deal, then that will actually set the cat amongst the pigeons. In the last fortnight, global markets have been rallying sharply, given that the dollar is at a three-month low; the carry trade is up and running; also the Fed is going to cut rates.
In the Indian context, you have one of the best budgets on the anvil given the strong mandate and given the macros have been very positive for the government. They can instil a lot of confidence through liquidity and sort out some of the imbroglio on consumption. It is a win-win situation and despite the pessimism we are closer to 12,000. I do not rule out 12,200 coming before the budget.
You were so bullish with regards to the domestic story, the capital goods story, infra. Let us talk about some of the names that you are looking at in that basket. Would you also go in for higher risk names?
We think cement, construction, capex, corporate banks are going to lead from the front. In banks we like ICICI, Axis, SBI; in the smaller banks we are very bullish on DCB, Federal Bank, IDFC First. In cement it is UltraTech, ACC and Shree Cement as they have been able to expand margins during a lean season. Once you are through with monsoons, cement will be an outperforming sector in the next one year.
Construction picks would be again NBCC, Nagarjuna where a lot of weakness has crept in because of some change of government. It is just temporary. Sadbhav Engineering over is another top pick. In capex, it is L&T, Siemens, ABB, pedigree names which are going to get a huge order flow which show that books are swelling and execution is the name of the game.
We know that the government capex has been in the front running and now private capex is going to be the next game changer. For the next 12 to 18 months, the stocks should be India centric and they can generate a lot of wealth going forward.