5 energy & metal stocks to bet on in short term: Hemang Jani

“Despite near term aggressive price increase in crude space, there can be some sort of pressure on the margins but overall this is a very interesting niche area to look at. We have recently come out with reports on VRL Logistics, TCI and TCI Express and from an investment point of view, these are the good midcap companies to own,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL.

Crude has spiralled up to $110 a barrel. How are you going to approach the crude sensitives? Is it time to book out of that pocket?
The way things are happening and unfolding in the Russia-Ukraine saga, it looks like we are in for some more uncertain period when it comes to both crude oil as well as certain metal names. In that backdrop though, there can be a little bit of volatility depending upon the developments but clearly this is one segment which would be a net beneficiary of the pricing environment.

Most of the investors would have an underweight position because of their smaller weight in the indices and that would make a strong case to participate in it. Of course, it is a high beta play and there can be volatility but given the backdrop, we would be very positive on names like ONGC, Oil India and of course some of the metal names like Hindalco, Nalco, Coal India and the base metal space like nickel and steel. It is a good short term tactical play at this point of time.

The other ancillaries like the logistic space one has already seen truck rentals rise and in February, there has been an uptick of about 1.5-2% coming in. The e-way bill generation has seen an uptick. What does it mean for logistics plays like a TCI or a VRL Logistics?
What is important to understand is that though there would be an additional risk of the higher input cost for these logistics companies, because of the state elections, there has not been any price increase as far as diesel and petrol is concerned. The truck rentals have increased by about 1.5% and that bodes well for logistics companies along with the fact that we are seeing a very high traction on the e-way bill part.

So overall, we have been quite positive on this space and we think that despite near term aggressive price increase in crude space, there can be some sort of pressure on the margins but overall this is a very interesting niche area to look at. We have recently come out with reports on VRL Logistics, TCI and TCI Express and from an investment point of view, these are the good midcap companies to own.

How much of the medium term portfolio positioning has changed? It was all about industrials and cyclicals at the beginning of the year, but given that commodity prices are high, demand will slow down. Are you telling your clients that they need to switch out of those stocks?
There are two pockets where we would like to have an underweight position: one is the consumer space because of the rise in the input cost and the rural slowdown that we are witnessing. The other pocket is auto, particularly two-wheelers.

We think that in the current environment, there is a slowdown is the structural issue as well as disruption risk because of EVs. We have an underweight position on two-wheelers and at the same time, given the way things are unfolding, it would make sense to have a slightly higher allocation for some of the metals and commodities, though they have run up quite a lot.

However, I do see that many institutional investors and even HNIs would not have a meaningful exposure to all these commodities and metals in their portfolio and given the fact that the Ukraine-Russia saga may continue for a while, the chances of oil and metal prices remaining high is relatively higher at this point. It makes sense to have these changes in the portfolio.

Will IT now start looking more attractive than banks?
Banks is one segment which has reported best quarterly earnings and even if we look at next one or two years, the earnings growth will be the highest and this segment also has the highest weight. We continue to have a positive view on the entire BFSI space.

Coming to technology, the entire sector has gone through quite a bit of correction and we do not see a need for any major revision to the earnings estimates given what is really happening. In fact, if at all the tech spend and the digital transformation theme is gaining ground and it will continue to do so over the next one or two years. Companies would come out and do buybacks and make large dividend payouts. The correction in IT names is a great buying opportunity for investors.

You tweeted today about ATF being at an all time high. Is this going to have an impact on the airline stocks, hospitality stocks or not?
Given that already the sector was struggling over the last one and a half two years and we are seeing normalcy coming back, at that point we are seeing the crude and ATF prices go up. This is the fifth time that the ATF prices have been hiked. I do not think that the airline companies have a great pricing power to take a commensurate price hike, if at all, they will have to take far more moderate price hike for the next few months. So though we like some of the names, particularly Indigo, in the current backdrop, it would not be advisable to venture into airline space because of the kind of issues that we may have on the crude price front.