Auto sector is holding on in this market rout. Neeraj Dewan on 3 stocks to buy

“Maruti can be one stock which people will be looking at investing at these levels. Mahindra & Mahindra continues to be good because valuations there are not expensive and it will continue to be one of the favourites. Tata Motors can be a dark horse with the kind of numbers we have seen and should continue performing well,” says Neeraj Dewan, Director, Quantum Securities.

Why is there this panic in the market?
We all are analysing the Budget and what can come in the Budget and worrying about inflation and interest rates and look where it has come and hit us! We were not expecting this. The report on Adani Group has got all the stocks of the Adani Group down. Banking stocks which are taking a knock because of the exposure they have in the group.

It has more to do with the panic associated with the fact that there is actually something wrong in the company or in this group and that is impacting not only those stocks, but even the banking stocks. I think it is very important first to understand that there are companies in the group which may have some value and this panic needs to stop where we can take a fresh call on what the valuations are.

We have all been talking about high valuations in the group and high leverage; that definitely was a known fact but we do not expect there to be any accounting jugglery. That no one really expected and should not be there. All that is causing panic in the Street.

The shareholding in Adani Group of companies from an institutional standpoint and retail standpoint is minuscule. This is not HDFC bank or Infosys, where companies are owned by institutional investors, where if something goes wrong, the collateral damage for investors and HNI investors could be large. These are largely promoter driven, very tightly held companies. The collateral damage will not be large. Then why are markets panicking so much?
Like I mentioned, the banking sector gets very vulnerable if any news comes of even a possibility of some default which may or may not happen. This is one sector which is coming out of the NPA cycle and we do not want another wave to come and hit them. It is a highly vulnerable sector that has moved a lot in the last few quarters and had driven the markets to these levels. And now that sector is taking a knock.

So, it is not only for high valuation. Any default may not happen because there is no reason to panic right now on that account. But the banking sector is down and it was really leading the rally. The Adani Group stocks are down and so even when selling happens, there are margin calls and other stocks get sold because of some losses in some sector or some stock. All that contagion plays on the market.

Plus everyone has been talking about the high valuation of Indian equities and that is also playing on everyone’s mind, right from the beginning of this year. Whichever FII or if you get some fund manager from abroad, they all talk about high valuation and when other markets like China are more attractive, they are finding other opportunities also and selling is continuing there. When the market gives way like this, then even the retail investors panic. But people holding on for a longer time also are starting to panic and prune their position. We are seeing the aftermath of a combination of all this playing on the market.

Let us talk about a pocket which is actually holding out. Bajaj Auto as well as Tata Motors are in the green on a day when the market was draped in red. Is it still a buy on Tata Motors?
Yes, Tata Motors has been underperforming whereas our markets have been outperforming for the last one year. But Tata Motors compared to four-wheelers like Maruti or Mahindra & Mahindra has underperformed. The kind of performance they have seen in the result this quarter is something which will see further improvement going ahead. It looks like even the management is cautiously optimistic. I think Tata Motors even from these levels can go up. After 4-6 quarters of bad results, these kinds of results look very encouraging.

In the auto sector, there were good numbers from Tata Motors. Bajaj Auto took a beating, Ashok Leyland is holding out well, M&M continues to do well. Do you think the hands are now changed from an M&M and a TVS to maybe a Tata Motors or any other?
The Maruti numbers are very good and they have a great line up now. Maruti has seen a lot of upgrades also and this stock has not really moved too much after the results. So, Maruti can be one stock which people will be looking at investing at these levels.

Mahindra & Mahindra continues to be good because valuations there are not expensive and it will continue to be one of the favourites. Tata Motors can be a dark horse with the kind of numbers we have seen and should continue performing well. So among the four wheelers, the pecking order would be Maruti, Mahindra & Mahindra and Tata Motors can still be a good candidate for a decent return this year.

Your take on where Bajaj twins and HDFC twins are headed?
Bajaj twins have seen a correction. A lot of stocks which went to high valuation have seen the correction and have been hit more. Bajaj Finance and Bajaj Finserv also have taken a hit because of that. But after the correction, they have become attractive now. They have again come into the accumulate kind of a zone. So one should accumulate Bajaj Finance because it has been managed so well even in the Covid downturn and the company is really very well managed. I think this kind of a correction has given opportunity to people who want to invest into this kind of a company for a longer term.

Coming to HDFC, HDFC Bank, valuation-wise, they are still not at the higher band. So even from these levels, one should hold on and buy on dips. One can buy HDFC Ltd because of the merger ratio. That remains as a market performer and can give decent returns this time.