Not IT, pharma or metal, this stock to gain most from Re fall: Abhimanyu Sofat, IIFL
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Not IT, pharma or metal, this stock to gain most from Re fall: Abhimanyu Sofat, IIFL

Prospects are bright for this Chennai-based export oriented auto ancillary company,�Abhimanyu Sofat, VP-Research,�IIFL, tells ET Now.
11 Sep, 2018, 09:00 IST | Mumbai, India
Not IT, pharma or metal, this stock to gain most from Re fall: Abhimanyu Sofat, IIFL

Prospects are bright for this Chennai-based export oriented auto ancillary company,?Abhimanyu Sofat, VP-Research,?IIFL, tells ET Now.

Edited excerpts:?

Are IT and pharma the only story now or should one seriously look at metals??

I would tend to agree with you. We have been playing the IT right for last couple of months and still believe that there is more upside because clearly on the rupee side, whatever level one talks to, it keeps on going down.?

On metals, Rusal is a key trigger that is likely to be there for the market in next one month or so. If the sanctions against Rusal return, that could create some kind of a panic in the market for some time. One needs to look at that but coming in from valuation perspective, something like Hindalco looks quite attractive as the domestic industry is doing pretty well with less emphasis on imports and a better integrated model relative to something like Vedanta.?

Novelis is also likely to do pretty well going forward with the exposure to the auto sector and the Aleris acquisition also playing well.?

I would say that in addition to stocks like Aurobindo Pharma, where the acquisition of Sandoz???s businesses could bring in additional earnings of close to around 17% by FY21, IT, pharma and metal would be the best suited right now considering where we are right now.?

Is it time to log out of some wholesale NBFCs ??? be it Shriram Transport or Bajaj Finance or Cholamandal?

There is going to be an increased pressure on NBFCs which are looking at funding from the short-term maturity. We have seen a plethora of fund raising from the market over last couple of years led by belief of people that interest rates are going to come down and reduce their cost of funds. But there is clearly a duration risk for NBFCs. I would say for sure that though the growth opportunity in terms of loan growth still remains, on the margin, I would see a cut in earnings for all the wholesale NBFCs going forward because market liquidity is pretty tight.?

If you look at the overall situation, around $220 billion of short-term liabilities are likely to be met by March 2019, which if they are rolled over, could put further pressure on the yields. From that perspective, considering the tightness in bond market, one needs to be more circumspect about which particular NBFC to invest in so that some of these NBFCs might look good at a decent price or something like Shriram Transport could be very attractive at the price of around Rs 1100, considering that the growth opportunity on the commercial vehicle space is good. From a valuation perspective, the stock looks good.?

Other than that, we would be more bullish on the non-financial space at this particular juncture until we see further reduction in the bond yield from these elevated levels.?

What is going to happen to HDFC Bank, HDFCs, Bajaj Finance?

An exuberance was clearly seen in these stocks. Nothing has changed at least on the loan growth fund for these companies. However, with the rising bond yield, clearly NBFCs are likely to be under pressure because of higher cost. We have seen Bajaj being able to give rates at significantly lower rates to what competition was giving in market leading to significant growth in AUM.?
The impact of bond prices going up will have to be faced by even Bajaj Finance. Depending on where bond yield rate, one could see analysts revising estimates down for such companies by at least 8% to 10% for this remaining period during this year. That is clearly being reflected in the downgrades that we are seeing in these financial companies over last couple of days. So, it is a good story. It is a good stock to own but the price needs to be reasonable and somewhere close to around Rs 2,400, it will be quite an attractive stock to buy, considering that the growth opportunity going forward on the consumer finance side is pretty good for the company and their ability to cross sell products is significantly better than anyone who is there in the NBFC space, as of now in the market.?

Any stock ideas which you think can be bought in this current market decline?
One idea which I am really bullish right now is not from the IT, pharmaceutical or the metal pack. It is from the auto ancillary pack -- MM Forging, which is one of large export oriented forging companies from Chennai. Two-thirds of the sales of the company are from exports and with the kind of traction that we are seeing in overseas market for truck sales and significant increase in order book for the sector, this company is going to do pretty well.?

Even on the domestic side, we are seeing the HCV segment continuing to do well on the back of tailwind of rupee depreciation as well as good domestic growth. Earnings growth in this particular company could be at least 25% CAGR going forward and with the valuation being relatively cheap at around 13 times, this is a very good stock to own at this particular juncture, looking at companies which will directly benefit from currency depreciation.?

Source: Economic Times