Use the dip for buying; here’s what to pick up: Hemang Jani

"We should be looking out for backward integrated companies where there is not too much of an issue in term of raw material supply and the capacity is enough so I think from that perspective names like Deepak Nitrite, Deepak Fertilisers, SRF, Aarti Industries are the companies that could benefit," says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL

How are you looking at the complete reversal in the macros in terms of what it does to the bulls? They will take a back seat but the question is for how long?
In the past three months, we have seen many instances where because of overnight developments in the US, we have had gap down starts but the best part about the market is that we really managed to bounce back very sharply and even the flow picture has remained pretty good.

So we might see a bit of a cool off, having seen such a sharp run up in the last few months but the basic triggers for our market in terms of the commodity prices which have corrected and crude oil prices in particular and the overall growth momentum being intact, make us believe that we should be using such dips or correction as buying opportunity as we continue to be positive on the overall earnings picture.

What would be that first port of call if you are looking at buying? Which sectors, stocks come to your mind?
Some of the pockets where we have seen outperformance in the last three months are banks, autos, consumer names, real estate, QSR plays and hotels. I think there are good opportunities within the space. In fact a lot of people would be on the sidelines and they would be waiting for some correction. A theme like capex has played out so well but there is not enough participation. I am sure people will be able to take advantage of this kind of corrections to get into the themes where there is a better growth visibility.

Do you track the entire specialty chemical space? Of late we have seen quite a bit of traction there and now the street is banking that apart from China plus one, there is going to be Europe plus one as well, both in terms of outsourcing of manufacturing plus the demand which used to come from that region. What is your take?
Yes, the specialty chemical space has been in the limelight primarily because of the kind of capacity cut down which is happening because of the non-availability or higher price of the gas and crude oil. To that extent, there is a sense that we will see many commodity prices shooting up, particularly ammonia and a few other products like soda ash and certain acids where we have seen the prices remaining firm.

The point to note would be that we should be looking out for backward integrated companies where there is not too much of an issue in term of raw material supply and the capacity is enough so I think from that perspective names like Deepak Nitrite, Deepak Fertilisers, SRF, Aarti Industries are the companies that could benefit. Also we have to reckon that these stocks have run up in the past few days. So one should be looking to build positions only when there is a small correction of 3-5% rather than chasing the momentum.

The latest Goldman report has come out. They are downgrading the entire IT space. They have alluded to valuation concerns and weak organic earnings growth. So across the board, be it Wipro, Tech Mahindra, Infy or TCS, there has been a downgrade coming in. Are they behind the curve, given what has already transpired in IT?
I think definitely IT has underperformed in the last six months by a big margin but what we have to understand is that you know given the kind of aggressive rate hike that we would see from US be if you see the headlines today HCL Tech is looking to retrench some people on the Microsoft project. Also Goldman Sachs is looking to retrench people and remember that BFSI is a big contributor to IT spending.

These kind of headlines are definitely not positive and on the margin picture things are not looking that great particularly for this quarter. There is a case for some sort of a PE derating when it comes to IT stocks. If one sees a bit of a correction at some point from a value investor perspective or a risk return perspective, one could definitely be positive on names like Infosys, TCS etc. but at least in the near term things are not looking that good.