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Be selective in cement, NBFCs; OMCs offer long-term opportunity: Siddhartha Khemka

Any decline in select cement stocks can be an opportunity fo..

Any decline in select cement stocks can be an opportunity for fundamental investors to look at the sector and start investing, said Siddhartha Khemka, Head of Retail Research, MOSL, in an interview with ETNOW.

Edited excerpts:

Cement is definitely one segment most are bullish on. Would you recommend buying on declines on such days?
Cement has been a sector where a lot of us were positive on the back of expected improvement in financials. Basically, the demand trend was always there. We were positive on the back of the consecutive price hikes that the sector was able to take. Today there is news that there has been a sharp cut in prices, specifically in the southern region. We need to confirm while our channel check suggested that prices have been increased. That is something that we need to try and understand at this point.

Another factor is there is news that some of the builders and developers have complained to the government about cartelisation among the cement players. Given these news flows, there would be some solution. The underlying business fundamentals continue to remain strong. There are select companies in the sector which we believe are doing well and any such decline can be an opportunity for fundamental investors to look at the sector and start investing.

What exactly is your take on NBFCs? Would you be fairly stock specific within the basket?
NBFCs has been a sector where we had previously seen the entire basket doing well. However, in the last few months post the IL&FS issue, clearly the men have been separated from the boys. The likes of Bajaj Finance which has clearly not got impacted by any of the liquidity issues continue to report very strong numbers. While there are a whole host of other companies which have got impacted either because of exposure to an IL&FS or because of the ALM mismatch and the liquidity squeeze that led to a higher cost of funds.

It is clearly a selective bet on the entire NBFC space. We would be a bit cautious not going over the board given that although the Q4 numbers were in line to marginally better for the entire pack. The sector could remain under pressure going by the commentaries, after the quarterly numbers. It is clearly a very selective space. Only a few stocks in the sector that should do well.

From the energy basket, some of the stocks have seen recent spikes in trade. Is there anything that is catching your eye?
If you see the energy basket, we had seen how volatile crude has been throughout the year and in one quarter we see inventory gains and in the other quarter, we see inventory losses. Despite that, because of that impact we had seen some of the oil marketing companies correcting a lot.

From the lows, some of them have now picked up but we believe that the OMCs provide a good opportunity from a long-term investment perspective. There was a huge derating once in the past when the government had restarted the subsidy sharing thing, but that did not continue because oil prices stabilised and now are cooling off. So, that is a space where we see a good valuation comfort. Some of the companies are offering a good cash flow over the next two years.

Indian Oil is our preferred pick in the OMC pack. Bulk of the capex is now behind they do also provide a good dividend yield which forms a base or support for the stock price. From here on, performance should improve given that the crude oil price are mostly like stabilising at current levels.

What about some of the other rate sensitives — auto, real estate? Are you tracking any of those pockets on the back of whether we might see a move on the policy front?
Yes, the rate cut expectation got a little bit more after the GDP numbers came in on Friday and in the last two days, a lot of that got factored in some of the auto and real estate names. It has been one of the worst periods for the entire auto pack. So we do not see any recovery in the auto volume numbers any time soon.

However, some of the companies valuations have become attractive from a longer term perspective. From that angle, Maruti looks good to us from a long-term investment perspective. One can gradually look at some of the two-wheeler names, basically on back of expectation. Any reform policy which the government will fast track to kickstart the rural economy. should benefit some of the two-wheeler names as well.

What are your views on Zee Entertainment? The deadline is fast approaching the management is talking about two players?
Yes, with regards to Zee we have seen that while the underlying core business performance has been pretty strong, the stock has been reacting to the news developments with regards to the promoter stake sale. There havRead More – Source

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