Sanjiv Bhasin: Expect a 500-700 pt market rally in February

Midcaps and a large part of select PSUs can be huge outperformers but it is going to stock specific. There is scope 67766363 67768162 67757642 to be contrarian in a number of sectors, Sanjiv Bhasin, Executive VP-Markets & Corporate Affairs, IIFL Securities, tells ET Now.Edited excerpts: At the beginning of the year, the view was that US markets will remain under pressure, emerging markets will come back and the rally would be led by India. But now, everything has gone up and we are feeling left behind. Why is India underperforming the world with such good macros?Consensus generally tends to get proved wrong. Now, we were of the view that the Dow is due for a very strong rally and the dollar should weaken. Yesterday bond yields hit 2.68%, which tells you that Donald Trump has won over the Fed chairman and now there is dovishness which seems very good news for emerging markets. For India, there is this overhang of NBFCs and disclosures by DHFL, Zee. but being an Indian, we know this is part and parcel of all market moves. We are extremely positive. We think the results from select largecaps and midcaps have been extremely flattering and this could prove to be a lull before the storm. We will go up from 11000 to 11200 in February and I can reiterate that by 15th of April, you should be close to new highs. That aside, the midcaps and a large part of select PSUs can be huge outperformers and so it is going to more stock specific, but I do not rule out a 500-700 point rally in the month of February.A 500-point rally, did I hear you right? What could be the trigger, what will take us 2-3% higher on the Nifty?Two things; a) you will get over the budget where there could be some surprise packages in the form of tax exemption and b) the RBI turning extremely dovish and a rate cut coming. We know that we are in the realm of low inflation, low yields and the RBI trigger, liquidity and foreign flows on a strong rupee will all be the caveats for February being a very good month. Let us talk about some of the policy sensitives. You highlighted how the accommodative stance from RBI would help the policy sensitive or the rate sensitive sectors. Could there be a contrarian opportunity in real estate?Yes. Real estate assets have never been cheaper and stocks have actually been underperforming miserably. Once we get through these elections and see stability, it is a given that real estate prices as fixed assets should get a lion’s share of the money rather than gold. I am very bearish on gold. I would say that fixed assets will do well including real estate. Our top pick continues to be Godrej Properties followed by Sobha and maybe a Prestige Estate. These are three stocks where we can actually put a lot of money and be confident because the churning has separated men from the boys. Real estate can stand to gain by the middle of this year and later from there. The ICICI Bank numbers are good. The ADR shot up by about 8-9% overnight but the stock has also moved 40% in this fiscal itself. How much scope does it have to move forward from here? That is a good point. Smart money has been buying ICICI right from the time both the two agony aunts of Axis and ICICI left and if you were contrarian there, you have really made a lot of money. I still think we are headed much higher. Rs 700 is something which I do not rule out in the next one and a half years on ICICI and Rs 800 on Axis Bank. These are going to be prime plays on the corporate lending side and we have seen a cleansing of balance sheet. I can even add that State Bank should be a big outperformer in this trio of stocks. Another stock which I am very bullish on is IDFC First Bank. That will be the star of 2019 and Mr Vaidyanathan will see that bank is a huge outperformer in the next one year.What is the call on IT, especially the bigwigs?We have had two stocks as contrarian plays; MindTree and HCL Tech. We stand by that and Wipro is the dark horse which has out beaten all. We think these three should be the best combination to play on the IT side. You have advocated Maruti but what is the view with some of the two-wheeler names in the wake of the expected big allocation for the farm sector? Will that trickle down into consumption numbers for autos, the two-wheelers? We have seen autos go through the proverbial problem of competition like in telecom. Bajaj Auto stands out and they have given away part of the margins to get market share and that seems to be working. But I think this is just the lull before the storm, this has been a very strong sector for the last three years and this quarter we have seen problems because of insurance overhang of NBFCs. I still think that both Bajaj Auto and Hero are looking very good on the two-wheeler side. You even have Eicher and TVS. So, if you bought a basket of stocks and went for a SIP. rather than one outright purchase, you can make a fair amount of money. Consumption is going to come back once you get lower rates. Following the NBFC fiasco, most of the other banks started to lend very aggressively and insurance is now on the back burner. So. I am relatively bullish on autos. As a contrarian one of my top picks is Ashok Leyland. It is the third largest bus maker in the world. It will have 50% market share in India and you have seen state governments now get on the prologue of electric vehicles where Ashok Leyland has a first over there. Also in the LCV, MHV side. I think they are going to show strong numbers March quarter onwards. So at Rs 80-82, this is a very good bargain buy with a target of 125 to 135 by next Diwali. What has gone wrong for Godrej Consumer? HUL is growing at 10% plus, ITC is growing at 8-9% plus. Other companies which have reported numbers so far, are not bad including Asian Paints. Why is Godrej Consumer the odd one out?It could be a one quarter hiatus and I do not see that lasting. I think they will be back. We have seen the strong numbers in durables particularly the likes of Havells, Bajaj Electrical, Voltas and like you mentioned, the discretionaries and the sales of Asian Paints, ITC. Godrej Consumer definitely deserves to be bought. It is a pedigree name, the brand is doing extremely well and it is just a matter of time where higher costs will start to reduce and margins will expand. I think this quarter onwards you should start to see much better traction on volumes.But the management has said that 2019 will be a bad year for them! Do you think this is an indication of what is happening to the sector per se or this is isolated to Godrej Consumer?No, it could be isolated to them because there is competition which has brewed up over there and like I said, they are a very conservative management. They under promise and over deliver and that is what stands out for Godrej. However, consumption is a mixed bag. We have seen autos weak but we have durables doing extremely well. A company-specific move may be on the cards but definitely the broader band of peer groups are doing extremely well. So ITC continues to be our top pick over there and we think that they are going to just expand much more on the other businesses which is evident in the numbers on paper, hotels and the FMCG.

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