Jani also says that Adani is an election play. When the election dates are announced, there could be a pre-election rally and Adani would be one of the groups that one could really look at. Adani Port would be one name that we would be comfortable buying into. Also, Ambuja and ACC both are great buys during this corrective phase.
How would you categorise yesterday’s move? Do you agree with Kotak’s assessment that most of these mid and smallcap stocks are still trading at full to lofty valuations?
Hemang Jani: After a long time, we are seeing corrections across the board. But the irony is that while the Nifty is only 2-3% away from the all-time high, in the midcap and smallcap names, the correction at the stock level is far higher. The portfolio contraction has been quite steep, which has come as a bit of a surprise for most of the investors. I think that typically, in March, you do go through this kind of correction. Though we do not have any major fundamental driven triggers, it is more for technical, maybe regulatory, maybe some funding positions getting cleaned out, and so on and so forth.
I do not think there is a need to react in a knee-jerk manner. The correction is providing a great opportunity. The only thing is that one should try to have a little bit of balance between the largecaps and midcaps and smallcaps, so that the portfolio remains quite stable versus having mostly largecaps or mid and smallcaps.
What is the view on these smaller private banks because today they are going to be in the news flow. As for Yes Bank, the report is suggesting that they might be looking at a new promoter. Federal Bank, South Indian Bank will be in focus. Would you be a buyer in any of these second-level private banking names?
Hemang Jani: Banking as a space would do well. When you go through this kind of a phase, the high beta smaller banks face more pain. So, Yes Bank or IDFC First or Federal Bank including some of the smaller PSU banks really go through their own sort of corrections. But within the smaller banks, IDFC First looks quite compelling to us. In the case of Federal Bank also, by and large, numbers have been pretty decent.
The correction would be a great buying opportunity and some of the PSU banks, maybe BOB, Canara, BOI, are what we will be comfortable buying into through this correction.
How much of the percentage decline in small and midcap stocks is over do you think? Is it 50%? Is it 60%? Is it more than 75%?
Hemang Jani: Typically there are different stages of pain and initially there is a state of denial and then there is some sort of a panic reaction and then there is a capitulation. These are the stages that we normally talk about. I think we are pretty much close between panic and capitulation. I think over the next few days, we would see the stage of a complete capitulation and remember that it is very difficult to time this to perfection because nowadays the corrections are also steep and the bounce backs are also equally steep. So, it would make sense to be a little well-positioned rather than trying to be in a stage where you want to settle down or you want good news to start flowing in. I do not think that the market is going to be so kind with everybody. So, while panic is visible, I think we are very close to the capitulation stage.Would you buy or revisit the Adani Group of stocks again?
Hemang Jani: I do not think that the fall was very steep across all the names. Within the group, Adani Port looks to be the best bet. Fundamentally, the recent data points indicate that the volume growth, the overall earnings trajectory looks good. We have to remember that Adani is also an election play. So, when the election dates are announced, there could be a pre-election rally and Adani would be one of the groups that one could really look at.
So, surely Adani Port would be one name that we would be comfortable buying into. Also, we are seeing sharp corrections in Ambuja which is partly because of the news that existing investors who are holding about 3% stake, may be looking to exit. That has led to some sort of a correction. But I do think that Ambuja and ACC both are great buys during this corrective phase and these are the names that we would be comfortable buying into.
Give me two or three names where you will buy the fall.
Hemang Jani: After a long time, we are seeing this kind of a sharp correction. So, obviously it presents opportunities and it would be great to look at some of the names, like, for example, some of the PSU defence names, BEML, which I was looking at it yesterday. From the top, it is down almost 34% and we all know how the entire story is panning out across the businesses that they are in. So, that would be a good stock to accumulate. Apart from that, some of the health stocks like Max Health, Apollo Hospitals, have corrected because of the Supreme Court ruling and there is overhang but typically, these are all very defensive, stable cash flow generating companies.
I do not see a reason why there should be such a steep correction in a shorter time frame. Apart from that, we have seen how that entire space has panned out. It would be good to look at some of the stocks like Lemon Tree, Indian Hotels, from an accumulation point of view.
What is the view on ITC? Brokerages seem to be of the view that fundamentals will take centrestage, now that the technical factors like stake sale news is behind us. What is the road ahead for ITC?
Hemang Jani: The stock has underperformed big time ever since the demerger announcement was made and then we had BAT looking to prune down their stake. So, while the stock may not go down much, since there is going to be a little bit of an overhang so further selling whenever the time is right, the upside is also going to be muted. The stock remained broadly in a range between 400 and 500. I do not see a big upside, at least in the short run.
Yesterday, the entire power basket was seeing an acute pressure. Power Grid was down 7%; NTPC, NHPC, SJVN and even the financiers were under pressure. Of course, the valuations have become punchy. Do you think it was only a price correction or do you see a bit of a reversal in these prices on a fundamental basis as well?
Hemang Jani: For the broader selloff more so across PSU names. I do not think we had any specific development relating to power stocks. We should just let it stabilise over the next few days. Maybe Power Grid, NTPC would provide a great entry point also apart from some of the private power names like Tata Power which has also corrected quite a bit in the last few days. So, as a theme, it looks okay to me. I do not think one needs to be too worried about the core fundamentals or earnings part.
Among PSU banks. SBI of late has rediscovered momentum, BOB, Can Bank stocks have been on a tear. Do you think in this fall PSU banks will also fall or they will outperform?
Hemang Jani: As a space, PSU banking has done very well and has outperformed both the Bank Nifty and Nifty comprehensively. So, when they go through a corrective phase because of the high beta nature of that segment, they will go through larger corrections. But this will also provide us with a very good opportunity because fundamentally in terms of numbers and valuations, things are looking quite compelling. On many parameters, they are placed much better than some of the private banks. I do not think there is any reason to take a negative view at this point of time.
Where are you booking profits, where you would say that the momentum is over and now it’s time for me to take some chips off the table. What is that category – Railways, defence, manufacturing?
Hemang Jani: Defence would be one space I would be more comfortable with because of the way the government has gone about awarding the contracts and the overall positioning, post the geopolitical issues. So, BEL, BEML, maybe HAL, are the names I am more comfortable buying. But in railways, one can take a very stock specific view, but the railway stocks have really gone up far too much higher than what the actual fundamental change has been.