Why Abhimanyu Sofat is betting on these 3 midcap stocks
- Tata Global, Deepak Nitrite and Crompton Greaves Consumer are the 3 midcap favourites.
- We have been aligning our portfolio more towards the pharma sector.
- I would not like to bottom fish in OMCs.
- Crude price hike can pause market revival, not reverse it: Hemang Jani
- No recession threat in India, but global downturn a worry: Bharat Iyer, JP Morgan
- We knew growth will be very slow but 5% came as a surprise: Shaktikanta Das, RBI
- Who knows! We could have the next midcap, smallcap rally in 2021: Amit Jeswani, Stallion Asset
If the Indiabulls-Laxmi Vilas Bank deal fails to pass RBI’s litmus test, do you think it could turn out to be a crisis in the scale of the IL&FS one?
One must recognise that two weeks back or so, the CEO of Lakshmi Vilas Bank has already resigned. Considering a deal is under way, such kind of news could be worrying. It is very hard to say whether it would happen or not, but ultimately RBI has to take a call on that. Structurally, Lakshmi Vilas Bank’s numbers are showing a significant amount of stress and if Indiabulls has to come around, considering the problems they themselves are facing. this deal might take a bit of time before if it happens.
As for whether it can become something like IL&FS kind of an issue, the size and scale of Indiabulls also is quite large in terms of the size of the book and so if something happens to Indiabulls, then that kind of issue can happen. Right now, I am sure the cooler heads will prevail and going forward, if we do see a liquidity injection happening on the NBFC side, then such a situation may not happen going forward.
What is there on your radar? What would you buy today, tomorrow, this week, next week?
There has been a clear shift in the last 10-15 days and some amount of interest has started coming back in the midcap side of the market. Some of the stocks that we are looking for would include Tata Global because once you see the shifting of consumer business from Tata Chemicals, it could add up to around Rs 150-crore-odd to the EBITDA of the company.
There is a smallcap company called Deepak Nitrite where for some of their businesses, growth will be strong and ultimately the earnings growth could be in excess of 100% over the next one year, whereas the multiple is less than 10x for this particular company. We have also talked about some of the other stocks like Ipca Labs.
In addition to that, a high ROE business could be something like Crompton Greaves Consumer which looks quite attractive considering that the ROE profile of the company is in excess of 30%. We feel that particular market should grow at around 16-17% over a period of time. These are some of the stocks we like from the midcap basket at this particular point of time.
Is there anything that catches you interest in pharma basket because many believe that a big overhang got lifted for Sun Pharma. DRL has been a favourite in any case and valuations are in favour of the pharma sector in general?
Absolutely. On the domestic side, we are clearly seeing some amount of improvement happening in volume in this sector. In terms of stocks we like, we believe stocks like Ipca Labs where the earnings growth is going to be more in the range of 26-27% CAGR over the next two years is clearly one stock where we are seeing an industry leading volume growth happening. That is one stock that we really like.
We had turned bullish again on Sun Pharma last month after being negative for the last two years. We feel that the risk reward is quite good. The domestic business as well as the rest of the world business is good enough to take care of the existing valuations of the company is available. A price target of close to Rs 500 is easily achievable over the next one year in case of Sun Pharma. We have been slowly aligning our portfolio more towards pharmaceutical sector relative to what the allocation was in the last two months.
Is there any PSU which you think would be a viable option if disinvested?
Power sector is one where we clearly see an opportunity going forward in terms of growth. We would be interested in a company like Power Grid. Other than that, in the case of the PSU banks, we would be interested only if we see a change in management on change in ownership.
We have been tracking the move on some of the OMCs given the crude concerns. Higher oil prices may actually be sustained for a while. What would you be doing with some of those stocks right now?
First of all, the consensus view now is that what has happened is a temporary issue where oil has now gone up to $68 and as supply improves, you will see oil going down. I do not think that is going to be the case because overall the risk premium for crude has definitely increased for the next couple of months. That is a reality that one needs to look at.
If we do see a war happening with Iran, you could see some of the other middle eastern countries also getting involved and not only Israel or US. It could be a very large risk to the market, especially for say Asia. Most of the countries are net importers of oil. In India, we have seen how the rupee has reacted. So from an OMC perspective, I would not like to bottom fish those OMCs. The risk reward right now is not favourable because no one is expecting crude to continue at $75-$80 which could be a possibility going forward if the tensions do not ease over the next couple of weeks.