Sanjiv Bhasin on 5 large and midcaps to pick in Samvat 2079

“Can Fin Homes is the midcap to go for. The numbers were very smart. They have a book of 40,000 crore and a market cap of Rs 6,500 crore. They have assured us an external CEO is on the way. It will happen by the end of next month. Plus in the Rs 8 lakh to Rs 15 lakh space, they and LIC have the lion’s share of the business,” says Sanjiv Bhasin, Director, IIFL Securities.

People have a left out feeling as far as the Indian market is concerned, especially large institutions. They have been talking about valuations, FIIs have been selling. What would be the one or two largecap stocks that you have in your portfolio that you would recommend to people over the next one year? Also where is this missed out feeling which if flows come in, could lead to a rerating? What will be your one largecap pick for that?
ICICI Bank would be the top pick. It has been a stellar bank as far as the liability franchise, the NIMs and the asset quality are concerned and retail flows have been the saviour of this market. ICICI Bank has now taken the template from HDFC Bank after the recent merger and. It can still give a 30% upside from there.

One can also add an UltraTech Cement where the numbers were slightly below expectation because of the extended monsoon. But with 120 million tonnes of capacity and having the best pricing power would be another of my tools. These two would be my top favourites among largecaps.

Can you explain why you like ICICI Bank despite everybody being bullish and why is there a contra view on UltraTech?
ICICI because in an environment which is volatile, I want safety first and especially the retail investors or the institutions would prefer safety first over returns later. ICICI fits the bill perfectly. It was under-owned for the last one year. It has come back with stellar numbers and I still think ICICI is going to go to four digits and beyond and that would be my top pick on the safety criteria.

UltraTech fits the bill because across the board, whether it is road infrastructure, ports or inland road transport, commercial, residential, you cannot do without cement and there is a cartelisation as far as cement capacity goes. No new capacity has come in the last 20 years and UltraTech has arguably the lowest cost of production and best reach. At these multiples, given that the worst of the extended monsoon is over, we could see big outperformance from UltraTech and a 25% upside by next Diwali is very much on the cards.

When we talk about UltraTech, do you think that a new player entering the cement space will change the situation? What should one essentially watch out for?
Adani has picked up Rs 85,000 crore worth of Holcim stake in ACC-Ambuja now. It means that they have the additional advantage of 38% of cost because of logistics and power. I think there is such a big demand for cement that all the existing players are making an embarrassing amount of money. So there will be a little bit of competition on the distribution side. I still think UltraTech will continue to be the numero uno as far as cement goes.

What will be the main stock that one should have in their portfolio maybe for one year, two or three years? What is that one spicy stock that one should have?
So, simple case. Which airline did you travel with?

Came by Vistara.
Okay Vistara or Indigo, Vistara is preferred.

Tata Airlines or Indigo?
There is no bigger play than Indigo. They have gained more market share on the Spicejet fiasco and given the reach which they have, you know I have been travelling for the last 16 weeks. Indigo is a no-brainer. On the back of that, domestic travel is at its highest. I was going to Amritsar on Saturday morning at 6 o’clock. I have never seen so much rush in the airports.

Indigo has a very good cost advantage of being a very unique airlines which runs with no freebie. The spice that you are looking for can come from Indigo. I would not be surprised if Indigo hits all time highs in the next year, given the volume, the yield which they are looking at and given the demographics of India.

When we talk about Indigo, there are always many variables. For three years, it has done nothing and now if demand comes back and pricing is stable, one should look at this name?
One year back, when people asked me, your top pick was Rs 140. At that time, nobody was talking of Indian Hotels. You have no imagination of what spending can be and if we see the US and the UK, there are no visas but domestic travel is going through the roof.

I have no two ways to think that Indigo will gain market share and given the uncertainty of crude with which they are hedged, these are small variables that is why you are getting it at the price where it is. I think it deserves a price of close to Rs 2,400 by next Diwali, all things going as per cues.

Which is the one safe stock with decent returns that will give you a good night’s sleep?
Sanjiv Bhasin: Safety comes with a little bit of risk but if I had to say a safe name, it would be DLF. Arguably, DLF has been a relative outperformer even when it fell on its worst times. It does not break Rs 340. Their land bank, the type of construction activity and the realisation which they have seen, has never been in their history. They have become almost debt free with debt reduced by 80%l On the first of Shradh, they launched new floors and before the first day of Navratra, they have sold 290 flats worth Rs 1,800 crore.

The new one which they have launched?
Correct. So I cannot say safety because of the volatility, but given the type of pedigree and the demand for fixed assets in the shape of real estate, DLF is going to go out all gun blazing. I would be a little bit more risk taking and take DLF as my tadka (spicy) stock.

Interest rates are going up and that is a very big parameter over there. Everyone is talking about affordable housing. The cost of housing is going up. Do you think these variables do not matter over a medium term of time when you look at a stock like DLF?
They do matter but in a marginal way. What has been the experience of real estate in the last 10 years is that you suffered if you went for under quality stocks which promised a lot but delivered little.

One should rather stick with a Godrej or a DLF because there is a pedigree. A slight bit of heartburn on rates is not going to be detrimental. People want quality, they want a promise of a given house. I definitely think DLF is going to fit all guns and it is a myth of higher input costs. Input cost, in fact, has fallen 30% in the last three months. I still think that they will have the biggest advantage of resale sales.

Which is a midcap name which can do very well?
It would be Can Fin Homes. The numbers were very smart. They have a book of 40,000 crore and a market cap of Rs 6,500 crore. They have assured us an external CEO is on the way. It will happen by the end of next month. Plus in the Rs 8 lakh to Rs 15 lakh space, they and LIC have the lion’s share of the business. ,I am very very positive about Can Fin Homes. I think it can be a big dark horse and can give 50% return from this Diwali to the next.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)