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IIFL's Abhimanyu Sofat's 2 largecap bets for 2019

Mumbai | January 01 2019 11 : 53 IST | The Economic Times

We would be bullish on a stock-specific basis across sectors where the earning traction of companies is relatively better compared to competition. That is the thought for 2019 as of now. 

Continue to be bullish on Axis Bank and L&T this year, Abhimanyu Sofat, VP-research, IIFL, tells ET Now. 

Edited excerpts:

Would the upcoming elections in 2019 have a big bearing on the markets?

Obviously! Whenever an election result comes in, there is an increased volatility. Structurally, right from 1990, we had various governments coming in -- be it the Narasimha Rao government or before that VP Singh, Chandra Shekhar and later, the Vajpayee and Manmohan Singh governments. 

Structurally, if you have a long-term view in India, then who comes to power does not matter. There may be 5% here and there movement in the index because of the elections. But earnings growth is the key factor which will determine where the market would be two years from now. 

What we are clearly seeing is that things are improving at least on the sales side. Like for example, in the last quarter, top line growth for corporate India was close to around 28%. 

On the bottom line, there was pressure because of crude price but now with the crude price coming down by close to around 26% in last two months, we are seeing the margin pressure easing and for this reason, 2019 is significantly better compared to 2018 from a risk-reward perspective. 

We would be bullish on a stock-specific basis across sectors where the earning traction of companies is relatively better compared to competition. That is the thought for 2019 as of now. It is very difficult to get into sectoral themes in 2019 because based on how the companies are positioning, we are likely to see a very robust kind of growth all across. It has to be always a dispersion in terms of earning growth as well as return for investors in 2019. 

What would you advocate as top buys this year?

From a largecap perspective, Axis Bank looks quite decent at two time price to book earning growth of around 17% and with the RBI report also indicating that going forward NPAs stress may be reducing. In wholesale banks, private banks should be looked at rather than bottom fishing on the PSU side, because we still do not know what will happen there. 

On the PSU side, we have seen that loans to SMEs have increased dramatically over last one, one and a half years. So what happens on the asset quality there is something which one does not know of. From a safety perspective, Axis Bank with a new CEO joining in and changes happening at top level, looks to be quite good to us. 

Also, Larsen & Toubro is another stock which looks quite good to us as we head into recovery on the capex cycle. So these are the two largecap stocks that we currently are quite positive on. 

All brokerages are bullish on EPC companies whether it is Ashok Buildcon or Dilip Buildcon or NCC or L&T. I have always seen that too much of consensus is dangerous.

One reason could be that the earnings downgrade for some of the companies may not happen because of the kind of fall that we have seen in some of these names would have led to analysts cutting down their estimates. I am sure after this particular quarter's results; you will see a pruning of target prices by most of the analysts for some of these companies. 

Look at EPC companies from two perspectives. One is that clearly there is a mindset that there will be improvement in the capex cycle. Interest rates are not going to go up going forward and because of that there will be some improvement in earnings. 

Power sector is one sector where still we have not seen a traction in terms of growth going forward except for if you look at order book of companies like KEC which are doing pretty well. So from EPC company perspective, we need to be quite stock specific of which particular company we like, like for example in case of power we like something like KEC where growth is expected to be pretty good. Overall I would say that one needs to look at each one separately. In case of Dilip Buildcon there were some other concerns also which led to the fall in the price. So one has to evaluate everything separately in debt and equities and the thing which lot of these companies are grappling with. I would advise a caution on some of these names by investors and not expect 70-80% kind of upside in these stocks over next one year. 

Source: https://economictimes.indiatimes.com/markets/expert-view/iifls-abhimanyu-sofats-2-largecap-bets-for-2019/articleshow/67332456.cms

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