5 stocks to bet on in auto sector: Hemang Jani

“Our basic expectation is that the money would move away from the reopening trade like travel, multiplexes, hotels and all related sectors to telecom, IT, pharma and to some extent consumer names,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL

Which are the three stocks you are telling your clients to buy on this decline?
In the current scheme of things where many things are happening -- be it the taper, the new variant -- and this is happening at a time when the market was aggressively positioned on the reopening trade. Our basic expectation is that the money would move away from the reopening trade -- so travel, multiplexes, hotels and all related sectors -- to telecom, IT, pharma and to some extent consumer names.

In a tactical rotation scheme that one is looking at, we would definitely go with some of the midcap IT names. Zensar is something that we have been liking which has corrected almost about 20% from the top. Also ICICI Bank and Axis Bank, both of which have corrected 20-25% from the top with no major concerns in terms of earnings, but mainly because of the FII selling.

ICICI Bank definitely would be the top name that we like at this point of time. Telecom because of the way the price hikes have been announced and the fact that Bharti has done well. But this is not just a one-off event. This is something that will keep on happening over the next few quarters and years. There is going to be a significant re-rating both in terms of earnings as well as investor portfolio. Bharti would do extremely well in the current scheme of things.

Where within autos would you find comfort to buy afresh and where would you be negative?
There are a lot of moving parts when it comes to the auto sector. One thing is very clear that the passenger vehicle and CVs are the two sectors where we have a positive view in terms of the demand environment, leave aside the short-term challenge in terms of supply constraints or this chip related issue, which we think is going to get resolved soon.

More importantly, the market will start factoring in the demand part more than that. So from that perspective, Maruti remains our top OEM pick and just two days earlier, Maruti had a dealer conference at Jaipur and they have outlined the extremely good new product launches and the overall growth that they are looking at is extremely robust. So Maruti remains our top pick.

Apart from that, we think that from a tactical point of view, CV monthly numbers are going to be some surprise element. One can also look at Tata Motors and Ashok Leyland from a pure short-term perspective. Some of the auto ancillary names we like are Motherson Sumi and Bharat Forge. But, given the new variant and the way things have changed in the last four-five days, there has been some volatility in the stock prices and expectation but from investment point of view, we like both Motherson and Bharat Forge as part of the auto ancillary play.

Within the newly listed place, everything from PolicyBazaar to Paytm to Nykaa and I do not want to get into where you subscribed and where you made the IPO pop. But after the recent correction that has played out in the markets, how would you position these newly listed pack and wherein within this space would you find comfort or courage to buy afresh?
The newly listed space is more like a trading opportunity that retail investors would really want to participate in. Post listing, majority of the stocks are providing a daily movement of about 3% to 10% despite being a larger market cap company.

We think that names like Nykaa, Paytm, Zomato and PolicyBazaar are all good retail. For people who are actively participating in the market, they are good names. We are not very sure whether from a 2-3 year perspective, these companies would give those big wealth creation opportunities. It is possible that maybe a Nykaa or a Zomato could emerge as big winners but we really need to track quarterly numbers and management commentary on how the market is evolving because this being a technology space, there is going to be lot of disruption related issues and we need to track more closely what is happening at the ground level.

It is very difficult to take a long-term call but given the appetite that is there and most of these stocks are holding out, even when the market corrected 10% from the top, names like Nykaa, Zomato and few others have really been quite stable in a weak market which means there is a lot of appetite and we should position ourselves that way.

We have also seen a runup when it comes to the public sector banks There has also been a lot of news flow around privatisation and consolidation. Does that space excite you?
PSU banks in terms of operating performance have done pretty well and we think they will provide good opportunities for investors. For example, State Bank of India’s numbers were exceptionally good and consistently for the last four to five quarters, they are delivering good growth.

Of course, loan growth is where we are not getting that excited in terms of numbers but on most of the operating metrics, these banks are delivering good performance. One could have some allocation for the PSU stocks in the core portfolio and from a tactical trading opportunities perspective, apart from SBI, things are incrementally looking much better for Canara Bank, Union Bank and Bank of Baroda. These are the names where growth is sustained and people would want to have some participation. So we have a positive and constructive view on PSU names and can have some allocation both to the portfolio as well as from a tactical perspective.