Bet on select stocks rather than index: Amit Khurana, Dolat Capital Market

Amit Khurana, Director–Research, Dolat Capital Market, explains to ET Now why he remains neutral to slightly negative on Nifty. Indian markets are still at a premium to the average for emerging markets and have not really corrected during the entire fall.

Edited excerpts:

What is your outlook on the Nifty?

Probably for the first time in so many years we have a situation where the Nifty which is just about 5 odd per cent from the peak while the midcap index is at one-year low and stocks are literally at two-year lows in some of cases. Overall earnings trajectory is definitely supportive and that is why Nifty does not reflect the corrections that we have seen in some of the other indices.

Some sectors are definitely showing very good commentary and there is visibility in some of the channel checks. But having said that, midcaps have corrected and there may be a bounce back in the offing but this bounce back will be very different, if at all. The rally that we see from here onwards will be very different from what we saw over 18 months. It will not be across the board. It will be very quality and stock specific. Overall, we still remain neutral to slightly negative because all said and done India markets are still at a premium to the averages for the emerging markets and we have not really corrected in the entire fall.

The Chinese market has corrected by 23-24 odd per cent and so have other emerging markets. We have really held on at the Nifty level. Overall, our stance is that there will be stocks performance rather than the index performance.

After many quarters, one is seeing weak commentary coming in Titan. The management is saying that the jewellery industry has gone through a rough patch from the month of January to May. They are saying that there has been a decline in bullion demand and their jewellery sales have come in below internal targets. Do you think this is a one-off for Titan and if indeed there is a dip in the stock, a significant one should be bought in?

I would probably not read into that as a very serious weakening of demand per se. There is a base effect operating post demonetisation and the last year following transition into GST, we had a significant perk up in volume. Part of that may be base led issue but in general our sense is that footfalls are remaining to be reasonably good. If it is a question of lower conversion, we will have to wait and watch but I would not read too much into that as a negative stance. It remains one of the best franchises to own for a consumption space in India.

In fact, we are finding much stronger evidence of Titan grabbing market share from the unorganised segment in some of the other businesses like core jewellery business and gold business, . Though it provides a much lower proportion of their profitability and revenue, in general, I would look to add it on corrections.

Do you think there could be a contrarian call in PSU banks?

Every time, one hopes that the PSU banks are now value buys and things will turn around, but something or the other keeps them down. Our stance has been very clear. The only name that we have bagged in this space in last so many quarters is SBI. Even that seems to have challenges. Unless credit growth, the balance sheets growth becomes visible, it is not really going to help. We can build scenarios saying that the recovery is from the NCLT cases. Some of the other recoveries will start showing up in the numbers but that is not core profitability. These may be more like trading bounces. Trading bounces can be a sharp 30-40-50% in some of the cases and some of these names are really oversold but structurally one does not still have enough reasons or confidence to own these names.

In fact, we see a bigger threat that gradually these banks will be allowed to go into a very slow decline mode and probably keep losing market share. Their loss is gain for some of the high quality NBFCs, which we prefer as a play.

What about Tata Motors? Are the challenges with JLR business, going to keep the company under pressure?

I agree completely. The stock has continued to underperform the broader markets. Unless you see some real evidence of JLR performance improving and challenges on the Brexit front subside, one does not really have the confidence to build a very strong position in this stock. But it is an extremely cheap stock. The domestic business is doing pretty good but does not really contribute much to the profitability. It is a game of wait and watch/ I do not see much downside from the stock valuation perspective from here onwards but I guess the perception will keep the re-rating potential fairly constrained over the next few quarters.

Do you think the market made a mountain out of mole on the Shriram Transport news yesterday or is there genuine concerns centred around the company’s willingness to lend to a group company? How does it impact minority shareholders?

The statement put out as a clarification states very clearly that the loan is fairly well backed by collateral of the shares and so to that extent. It addresses the issue for the near term. But I guess we are in environment where slightest deviation from the standard policies of operating or disclosures coming out as a surprise tends to make investors uneasy.

Considering the experience that we have over the last quarter or so from some of the real good names, the first thing that everybody wants to do is cut down on positions. There is no logic or objectivity sometimes to the decision making process. Everybody wants to simply get out on the counters and that leads to these kind of reactions that we have seen in this specific case as well. I would expect this matter to settle down sooner than later.

Do you think for a bank as key as HDFC Bank, who really fills into the shoes of Aditya Puri is important and would that announcement impact the stock price?

I do not think so. This is one of the unique institutions which has been created over the last few years and has withstood all the challenges. It is institutionalised to a very large extent. The biggest competitive advantage which they have created for themselves, the risk management practices that they have created internally, is not driven as much by the individuals. It is more driven by the policies, the internal checks and balances. It is a fairly well positioned transition and there is some level of visibility built into the market assumptions also as to who could likely be the next number one. As an institution, I do not see any challenges to that extent and they have been fairly communicative over the last few years . There is a process in place and they have been fairly quick at that. I do not see an issue at all. HDFC Bank remains one of our high conviction picks. In fact, it is the only name that we have on banking space at large which we would be backing up for the last few months.

Where are you finding comfort within pharmaceuticals? Would you stick to the movers and the ones which have proven to do well earlier like Biocon which has got an approval or would you venture into newer territories like Lupin, Sun Pharma which are now beginning to get EIRs for their individual facilities?

We were backing Biocon but I guess the valuations now are fairly capturing all the positives. We expect the stock to go to a broader range over the next few quarters. It is the launch which will now determine the next upmove. On the other side, the other names are beginning to get approvals and we definitely see a much better visibility over the next four-five quarters for some of these names.

These companies have underperformed very badly and so to an extent, we are backing Lupin, Sun Pharma and Dr Reddy’s on expectation of better performance. Let us not forget that some part of that positive news flow is well captured into the upmove that they have seen. One has to be careful building up positions but definitely over the next 12 to 18 months, we would expect an outperformance from these names.