Along with Bank Nifty, one can build a fairly diversified portfolio of stocks which are not yet very expensive, says independent analyst Anand Tandon.
On market
Now that the US elections are out of the way, people are expecting a new flow of money into the market and consequently emerging markets should do well and India will be one of the beneficiaries going forward. The market is repositioning itself for that.
On financials
I am talking near term but financials largely have reported fairly good numbers and a kind of moratorium that seemed to suggest that there should have been a lot more pain, did not come through. So the numbers have surprised on the upside and the Bank Nifty which was dragging a bit on default expectations, is now playing catch up and is likely to sustain a little while longer. The real question, at least as far as India goes, would be whether or not interest rates can continue to remain where they are.
I have been arguing that the inflation is probably going to get higher than what most people expect. So far, we have managed to leave that out of the equation in terms of determining interest rates within the country largely on the basis of the MPC view that inflation will come down.
If the inflation remains where it is or climbs higher, there will probably be a situation where they will have to revise their view. Till the interest rates do not start to harden, there is no reason to assume that the kind of catch up that we are seeing will not continue, especially in a scenario, where the overall market momentum continues to be on the positive. That said, valuations are reasonably stretched and in fact are more stretched than they have probably ever been. Earnings are going to be slower for this year at least and maybe it will take all of next year before they catch up to where they were a year ago. There is probably a limit to how far the market can stretch but you do not want to call that right now.
On auto ancillary theme
There may be temporary mismatches in terms of valuations but growth can be expected to continue in the Indian market. Ancillaries, especially those which service the replacement market like tyres and batteries, are not going to feel that kind of a pinch even if the OEM sales were to come down because the base of vehicles has obviously been increasing.
That said, because of the last few months of inactivity, one would have assumed that the kind of replacements would have been a little lower but people have also used this timeframe to kind of spend money in terms of refurbishing whatever they have. Tyres has a big added advantage. One of the big problems for tyres has been cheap imports from China and thanks to the antidumping duty, that is now probably out of the way.
Consequently domestic tyre companies will probably continue to do reasonably well till cyclically there are problems in terms of raw material prices and so on.
For the moment, companies which are in the ancillary business and which are supplying to the replacement market besides the OEMs, are reasonably well positioned and can probably continue to move from here in line with the market.
On Bharti Airtel
If you are looking at it from a trader’s perspective, maybe it has moved up quite a bit but from an investor’s perspective, there is a lot more to go. At the end of the day, one of the great themes that we have been talking about in the market has been consolidation and it would appear that we may move from a three-player market to at best a two-and-a-half player one because Vodafone will continue to lose steam as we go forward.
So Bharti and Reliance Jio are the two obvious choices and Bharti is the only pure play one. Vodafone has to keep increasing its ARPUs. Both Jio and Bharti have been increasing their ARPUs and I would not be surprised if in a year or two, the ARPUs are as much as Rs 100 higher than what they are today which would be in the range of 40% upside from here.
With that kind of EBITDA increase, you would find a dramatic increase in the bottom line and that is what the market is really playing for. The only negative that I can see in terms of Bharti is that if the 5G auction comes too quickly, then there will be an issue in terms of a stretched balance sheet and they will again have to go out and raise capital which will be a big negative because there is no compelling use case right now for 5G which will replace or provide the kind of income boost that you will need to have made the kind of investment to get those licenses. I would imagine that barring that, there is nothing particularly negative that one can think of for Bharti. I think the bottom has been made. I would continue to remain a holder if you are looking at anything more than 24 to 30 months.
On media basket
I am not that big a bull in terms of the PVRs of the world. They are already pricing in a recovery which we have yet to see. We have to see if consumption buying has changed substantially and whether the OTT platforms that have become very popular during the lockdown, will retain the popularity and if the kind of pricing that we used to get for tickets in movie theatres will get impacted because people will realise that you can get the content of your choice when you want, in the comfort of your home without having to spend that kind of money and taking kind of health risks that going to a PVR entails even today.
If you are looking at media, the simple contention would be either by content companies which are feeding into the OTT and media space because there are new buyers and they can benefit or the channels themselves. Many of the FMCG companies have reported a contraction in their ad budget for the last quarter which will mean that as we get back towards normalcy those numbers will come up again and therefore one of the key beneficiaries of that will continue to be the channels which have survived and continue to grow from here on because as viewership comes back to the channels, as new programmes come back in so will the advertising and therefore you know the delta from here for many of the TV channels is probably quite steep.
On picks for Samvat 2077
Well I would not like to recommend stocks but I think there are several sectors which have been beaten down beyond recognition which have a good reason to move up from here. Energy and power are two such sectors. Whether it is oil refining, power sector in terms of generation and distribution all these companies are trading at valuations which are very reasonable and cement and aluminium among the commodities are also showing signs of strength. So, along with Bank Nifty, one can build a fairly diversified portfolio of stocks which are not yet very expensive.
