In an interview with ET Now, Prashant Prabhakaran of YES Securities shares his outlook on earnings, why he is bullish on HDFC and the sin stocks he is betting on.
Edited excerpts:
ET Now: What are you looking forward to in the upcoming earnings season?
Prasanth Prabhakaran: The markets are still overvalued and they are temporarily looking at a 20-25 per cent growth as far as earnings are concerned.
We will be closer to the 10 to 15 per cent mark which logically brings us down to the valuations of around 10,000-10,200 levels, where we would be comfortable. But the liquidity is keeping the market up and it can keep you in the range of 10,000 to 11,000-11,200.
ET Now: Are you de-risking yourself and keeping the 10-15 per cent band as a range of expectations?
Prasanth Prabhakaran: No, thats not the case. If you look at the last three or four quarters, you would find that there has been no consistency in the way earnings have gone by.
In a couple of quarters the earnings growth has been closer to 15 per cent whereas in others it has been around to 10 per cent. That is why this range has been taken. But the good part is that there is an upward trend after a long time and that trend has stabilised.
We kept talking about micros, and at some point of time those micros have turned out to be positive in the last few quarters and they continue to be so. However, the macros might have deteriorated. We are a lot more bullish on the micros than what we were around a year ago.
ET Now: What is the expectation on IT space?
Prasanth Prabhakaran: We expect a larger growth in the smaller IT firms. The larger IT firms will see growth because of the currency appreciation. This advantage will reflect in the quarterly results. At least for the current quarter you will see the larger IT firms doing far better. However, the mid-sized IT firms will, for a longer term, will be a hold in our books.
ET Now: It is interesting to see one of Yes Securities top bets is HDFC Ltd. What is making you or Yes Securities so bullish on HDFC Ltd? Secondly there is no Godrej Agrovet over here which Yes Securities have been talking about since quite some time, why is that so?
Prasanth Prabhakaran: The next six months are likely to be volatile and you would want like to hold on to HDFC because it is a low beta stock and a consistent performer.
The other bets are quality lenders too, if you notice. We have ended up with Gruh Finance back in our books after a long time. We are a lot more bullish on the stock obviously. The pedigree is the same as the parent. The fact remains that they have managed to give sizable growth over a period of time. Gruh Finance is a longer term bet.
HDFC is good for the next six months as we expect the markets to be a lot more volatile and it is better to have low beta stocks in your portfolio.
The BFSI names that we have in our books are Gruh Finance and RBL for the next two or three years. We believe they will play out and Godrej Agrovet remains a buy. I have not put it because it has been a consistent buy. We believe that it is a long-term hold in our portfolio.
Godrej Agrovet is into key four businesses; the MSP increase that has been announced last week augurs very well for the stock because one of their key lines of businesses – animal feed and pesticides and the inputs that are there as far as agriculture is concerned, practically takes up around 50-55 per cent of the balance sheet. So, we continue to remain bullish on Agrovet for the long-term.
ET Now: What about some of the sin names would you be a buyer in given the movement that you are seeing in some of the liquor stocks especially after the Karnataka government slapping a cess in its budgetary announcement. Then there is the news about the law panel probably recommending that gambling be made legal. Would these two segments find favour with you?
Prasanth Prabhakaran: These two segments are not in our buy list at this point of time. But we are bullish on the segment. We have not covered it now it but when we did cover it a year back, we kept on believing that there will be at least a 10 per cent to 12 per cent CAGR growth in United Breweries.
Right now this segment is not under coverage, so I cannot give you an immediate view because I have not looked at the balance sheets.
ET Now: What is your call on Delta Corp?
Prasanth Prabhakaran: Delta Corp is a high beta name and in any case I would avoid this stock. Anything that has been high beta has been under the regulators radar and you need to be cautious having it part of either a leverage portfolio or part of your portfolio by itself. There have been so many stocks that have come into the radar and have mode into ASM which has caused the stocks to collapse. So you need to be extremely careful when we talk about such names.
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