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Top 2 midcap bets from IIFL's Abhimanyu Sofat

Mumbai | January 21 2019 10 : 47 IST | The Economic Times

Continue to be bullish on Aarti Industries and Apollo Tyres which will continue to grow for next few quarters as well, Abhimanyu Sofat, VP-Research, IIFL, tells ET Now.

Edited excerpts:

How are you looking at the market sentiment for the week given that now it is really a countdown to the interim budget? Also, it is expected to be populist in nature.

The earning season, till now, has been pretty decent. We have not seen any large negative surprises. A lot of companies have reported an expansion in margins. Going forward, things continue to be quite decent. Lot of people were expecting that things will turn pretty bad. Going forward, people are expecting some sops on personal taxation side in the interim budget. 

Anything which leads to better growth going forward and more disposable income in hand is the play that one should be looking for from a budget perspective. From sectoral perspective, it would make sense to look at the private sector banks. HDFC numbers overall looked quite decent with a revival in capex. Any opportunity one finds in terms of getting stocks like Larsen & Toubro at lower level, considering the SEBI advisory last week, also could be an interesting play for the investors this week. 

Give two or three midcap ideas you are betting on.

Two stocks that we are recommending right now are; a) Aarti Industries because we see 40% earning growth momentum continuing for the company at least for next two to three quarters on the back of very strong order book and tailwinds in the sector. 

b) We really like Apollo Tyres, where we see an improvement in margins going forward. The rampup in the European operation is also helping the company to show significant improvement in growth. The stock is currently trading at around 10x multiple. From a risk reward perspective also, it looks quite decent to us. 

Street thinks HUL is expensive. It was considered expensive five years ago also. Those who said HUL is expensive are the ones who are crying the most because they missed on what could have been called as a considerable bout of outperformance. In last three years, HUL has not only managed to outperform the FMCG index, it has also managed to beat the index handsomely. Are those calling it expensive, crying wolf?

We were bullish on HUL till last month and now we have changed our stance and recommending clients to switch to ITC over HUL. The reason for that is that in last two years, the earning growth of HUL has been around 20% whereas, in next two years, we believe the growth will now taper down to around 13% to 14%. The reason for that is that the entire benefit of GST will get annualised in terms of numbers after the next quarter and as a result of that, the earning growth will not be there going forward. The stock is currently trading at around 46 times FY21. We believe that from a risk reward perspective, though HUL continues to be a good company, it would make sense to be in a sinner stock like ITC where despite tepid growth. It is not a 20% growth but since the multiple is quite low, it would make sense to be in that particular stock. 

Source: //economictimes.indiatimes.com/articleshow/67619376.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Two stocks that we are recommending right now are; a) Aarti Industries because we see 40% earning growth momentum continuing for the company at least for next two to three quarters on the back of very strong order book and tailwinds in the sector. 

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