Stocks for buying & stocks for profit booking
We have seen profit-booking in stocks which have run up a lot, particularly in banking where some of the midcap stocks where people were stuck for a long time. So, whenever they see the price come back to their original levels, they are trying to book the profit. That churn has been pretty strong over the last two-three months. Maybe the next leg of the rally will come from the midcap and the broader universe — be it banking and NBFCs or cement or for that matter even the auto ancillaries.
For the next leg of the rally, we should be focusing on the second tier or the midcap and the smallcap stocks where the momentum could be far stronger than the large cap ones.
On Shriram Transport Finance
We have to see the moves across these NBFCs in two contexts; one is that the overall financial space has seen a massive uptick and within that, some of these NBFCs where you see positive triggers in terms of operational efficiency, collections etc. More importantly, the entire internal working group recommendation would also have some effect because maybe over a period of time, people would start factoring in if some of these NBFCs manage to get the banking licence, how it will impact their performance over a period of time.
A combination of the strong move within the banking space, NBFCs being at a little attractive level and overall momentum on the business side continuing to be good is playing out. We need to see if post festive season, we see that sustaining. We continue to prefer Chola, Shriram Finance and Mahindra & Mahindra Finance within the NBFC universe.
On HDFC Bank
HDFC Bank was up 3.5% and Kotak Bank because of the kind of inflow which is expected in MSCI was also pretty strong. Banking is something where the flows have been pretty strong and the expectation is that over the next couple of quarters, if we see revival in the overall economy, then there will be an additional positive surprise in terms of earnings and overall cost of funds etc continues to remain good. People are trying to chase these banks given the momentum and positive data points that are expected over the next few months.
On FII buying
A part of the FII flow which is coming into November so far, is due to the MSCI flow which is in the range of $4.2-5 billion. A part of that will not sustain over a period of time. December is typically a dull month but the critical thing from a market perspective would be how the monthly numbers and overall outlook emerges post festive season. The entire rally is hinging on two factors — economic revival, the confidence that the managements are showcasing and which is backed by the strong FII flows.
We have to see how the numbers add up in January and February. So the next two months are very crucial from that perspective.
On cement sector
The cement sector has done pretty well. Recently when we did the channel checks, it came out very clearly that even post the festive season, the overall demand as well as the pricing environment continues to be pretty good. Except for South, most of the regions are showing a phenomenal growth in volume.
There might be some concerns in the minds of investors that since the sector has done so well, whether it really makes sense to enter into it at this point of time. Our take is that though the runup has been there, if you look at the earnings growth as well as the upgrades across most of the names, valuation-wise there has not been any rerating. Our view on the cement sector continues to be very positive and we prefer UltraTech which is a PAN India player and also Dalmia Bharat because volume growth for Dalmia Bharat over the next few quarters or couple of years is going to be very strong. These are the two names apart from JK Cement that we prefer within the cement sector.
On Biocon & $1-bn guidance for Biocon Biologics
Currently, biosimilar contributes almost 30% to the revenue for Biocon and about 25-30% is coming in from Syngene. Looking at the kind of statement and the guidance which has been announced, it looks quite positive in terms of the biosimilar part and the way they have gone about gaining the market share in certain product categories. Even in terms of Biocon itself, the overall investment and the performance in certain geographies continues to be pretty good.
Within the pharma space, Biocon would be one stock that people would want to participate in. We do not have a buy rating on this at this point of time but from an investor update point of view, these developments were pretty interesting.
On Kotak Bank @1900
It would be important to keep in mind that for a brief period of two to three months, Kotak Bank actually underperformed the Bank Nifty and even HDFC Bank and after they reported their numbers, there was a sense that the underperformance is not warranted given the fact that the overall outlook in the management commentary was looking better.
About 7-10% move that we are seeing in Kotak Bank is also because of almost Rs 5,000 crore of inflow due to the MSCI rebalancing exercise. Anyway, within the banking universe, HDFC Bank and Kotak Bank are where people would have larger allocation. Considering that the driver of this entire last leg was banking, it is no surprise that these two banks did well. Having run up like this, we have to see what kind of move we can expect over the next few months. We have a case for some kind of a cool-off as far as Kotak Bank is concerned because the flow may not sustain over the next few months.
Should Reliance be bought on dips or is it in for time-wise consolidation?
Hemang Jani: After seeing a very massive run-up in the last six to seven months, it is absolutely understandable that the stock may go through a bit of a consolidation as investors try and figure out what would be the next trigger for the stock to show a remarkable up move. You might see a bit of a consolidation but from an investment point of view, people definitely would want to consider it as this is a stock with a very high weight in the index. On the retail side though there may be some surprises, given the way they have gone about acquiring the smaller fintech companies.
Even on the ARPU front, Vodafone may consider 15-20% kind of an increase and if you have some increase on the tariff front coupled with some positive news flow on the retail, that could bring the investor interest back into Reliance. Overall, we continue to have a positive bias. It might remain a bit steady over the next few months but it is an important allocation stock for investors.
On Apollo Hospitals
Both on the hospital as well as on the pharmacy side, the company has good growth drivers over the next couple of years. On the hospitals side, the overall patients traffic and occupancy levels have really gone up and even on the pharmacy side, things are looking pretty good. They are planning a fund raise in the short run, but they are not looking to do any major acquisition.
This is one story that people would want to participate in given that there is a very strong hospital story as well as the pharmacy part and the performances have been pretty good. For non-Covid related treatments, hospitals could see a much better traction over the next couple of quarters. This could be a very interesting stock to look at.