Rupee is depreciating. Does that mean any pharma company is a good buy should one look in details. Why have you shortlisted Aurobindo Pharma and Sun Pharma? Is it because their exposure to US market is high or do you think that the earning visibility is quite clear there compared to other pharma names?
Apart from the domestic pharma, one should look at pharma exports. All are there, Lupin and Aurobindo are fairly good and Divis Lab is good in the R&D segment. The rupee weakness has helped the export oriented business. We are recommending Aurobindo and Sun Pharma and giving a target upside. These are the only two stocks which have got left on the upside with the fair valuation FY20 basis. Rest all are almost near the FY20 projected price targets.
Other than Sun Pharma and Aurobindo Pharma, even Lupin is there but it is quoting at a fairly decent valuation. The hangover of the US FDA import ban on the respective plants of all these companies is now getting over, That will give some more insight and foresight for these businesses and we believe that the upside could be here some more upside and there is headroom to earn money.
IT stocks, pharma stocks and private banking is something which you have mentioned as top bets. What is happening in infrastructure? L&T after buyback has seen a good move. Our technical experts are very bullish even from short term perspective. Any name from infrastructure space apart from L&T? Any midcap name which Motilal Oswal feels is a good buy even from current levels?
Apart from L&T, we have Sadbhav Engineering and KNR Construction in the midcap space. Again they will be heavily dependent on the new order flows. Right now the order book is very much full but as the execution capability is very much better than any other companies in the listed space, we have projected that these are the two companies where one should look at on any decline.
So far, the prices have very much declined even on names like Ashok Buildcon. This is the third company and these are the three companies where we are looking to buy at every decline.
With Yes Bank clarification coming in on Rana Kapoors position at the helm, what is the pecking order among the private banks? What HDFC Bank, Kotak Bank and IndusInd Bank have delivered in terms of returns versus ICICI Bank and Axis Bank and is there a yawning gap there?
On the return side, there could be a variation on a monthly basis on the price performance of respective companies share prices. In the private sector, the correction has happened right now and the price to book valuation is still on a little bit of on a higher side. Correction in these names is decent enough. Yes Bank has different reason which is external one but valuation front, if it corrects further by 3-5% odd, that would be again attractive, because historically on the price to book multiple, HDFC Bank has never traded below 3 or 3.5% in the forward earnings basis.
Kotak Bank or IndusInd Bank are all names which can be included in the portfolio on correction. Last months underperformance may give some kind of a saturation or consolidation this month and probably can start as and when we have the second quarterly number season which will start from October.
What is the mood in the market? Are people putting in more money or are they thinking of taking out some chips as markets are trading at much higher levels than they ever thought?
We have interacted with many a customer day in day out but there is no fear redemption or pulling out money from the individual equity, direct equity portfolio. There is much comfort level because our portfolios are dominated towards the largecap companies and the mid and smallcap companies. We are avoiding smallcap companies because of the high beta reason.
Of course, when the tide is in favour, then it may give you multiple returns but the defensive and the performing sectors are very much there. They are making money and our customer base are not so worried about the market sentiment so far neither they are going by or getting frenzied by the 11700-11800 levels. It is purely on value terms and they have confidence in growth-oriented companies. So far, as you see it is dominated by 8-10 stocks but IT, pharma are performing now. In between, there was the private sector bank rally. All these rallies are providing a good comfort level that can give you outperformance or if not outperformance, at least inline returns with the market returns.
Some of the stocks are trading at 40 to 50 multiples and are still finding a lot of takers. ITC has been a stock which has been in the FMCG space but cigarette growth rate is not as high as the consumer product growth rate. That is the reason its valuation has been less. Are you seeing any product mix change happening in ITC?
ITC is of course at 50% discount in terms of relative valuation to other companies. But they are improving and two years back, they broke even as FMCG company. Cigarette volumes are growing by 2 to 6 percentage variation every month and that is driving profitability right now. But as and when the management commentary guided that they are transiting from cigarette to non-cigarette business and an improved product mix with capex is on cards for every year. With high ROCE, the valuation gap cannot remain 50% in case of Britannia to ITC or Hindustan Unilever to ITC. That is driving some kind of rationalisation and may command a little more premium than what it is quoting right now, with Rs 10-12 EPS for FY20,
It is still available at less than 30-31 times. It is an attractive one where others are quoting at around varying from 45 to 65 PE multiple band. The price improvement in the rationalisation and the calibration PE multiple scope is much more there on the expansion mode.