IIFL's Abhimanyu Sofat makes a case for getting into midcap stocks right now
We are probably going to see liquidity improve going forward especially for SMEs and NBFCs. RBI may come out with some statement because over a period of time there has been issue in terms of credit growth for the small NBFCs and considering the the way the inflation numbers have panned out and crude price being benign, clearly there is a case of more liquidity being provided for us.�
Most of the midcap stocks have not gone up much despite the market moving up and there is a case for getting into some of them,?Abhimanyu Sofat, VP-Research,?IIFL, tells ET Now.
Edited excerpts:
Good day, bad day what is in store for us because today we have the credit policy?
We are probably going to see liquidity improve going forward especially for SMEs and NBFCs. RBI may come out with some statement because over a period of time there has been issue in terms of credit growth for the small NBFCs and considering the the way the inflation numbers have panned out and crude price being benign, clearly there is a case of more liquidity being provided for us.?
Also most of the midcap stocks have not gone up much despite the market moving up. There is a case of getting into some of the midcap stocks right now. From that perspective, things look to be pretty decent going forward. The only challenge is going to be something on the side and if there is a hard landing and that is the only risk that one is seeing over next one or two weeks.?
What is your view with regard to Jet Airways? It has been an evolving story. Do you think the Etihad can give the stock the hope it needs currently because you have seen enough and more in terms of volatility play out for Jet Airways?
We continue to have a negative stance on Jet Airways despite the cooling off in oil prices. IndiGo has better bargaining power in terms of capital adequacy. We have seen that reflected in terms of reduced yield across sectors. The interesting thing in the sector is that the pricing in the sector is up by only 1% whereas the overall cost inflation has gone up by around 20 odd per cent.?
I do not see Jet having that kind of money even if Etihad comes in. Their cost structure is too opaque and I do not think it would make sense to look at Jet Airways. We would rather go for IndiGo where we do see that with every $5 reduction in crude price, there could be an upside in EPS of close to around 35%. For that reason, IndiGo would be a preferred bet for us.?
Is there much to read into the kind of movement that you saw in Equitas and Ujjivan yesterday?
From a valuation perspective, both look quite attractive to us from a business model perspective. They are done with the kind of hit they had in terms of asset quality two years back. They have already provided a significant amount of money. The concern is more in terms of discount since the small bank has to be separately listed and already in case of Equitas, they have announced that 60% would be the holding of existing shareholders in the new bank.?
So they could be talking to the regulator in terms of how it could the the entire transaction be done in a better way. If that happens, there will be a significant upside in these stocks. So overall our view on both of these companies continue to be quite positive.?
Would all these clarifications being sought by the regulator on internal trading probing could continue to remain a big overhang for Sun Pharma?
The issue that we have had with Sun is that the domestic business growth rate was not that healthy in the last quarter. With regard to whatever has happened on the concall, I would say that vis-a-vis the domestic CNF business, there is no clarity on what happens to that particular company and why there was a related party transaction of close to around Rs 8,000- odd crores.?
Also, regarding the loans which were given to employees and others, the management did not provide any clarity. For these reasons, clearly the Street is quite miffed and that in addition to the issues with the US generic market, the margins on the R&D side and whether it is entering more on the speciality product side. The market will continue to have a bearish view on Sun Pharma. Until and unless, the management gets back and changes some of these decisions, the stock is likely to remain under pressure.
