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    There’s a spike in some of the Rs 50 stocks; should you get into them?

    Synopsis

    “We are hearing a lot of buzz around the 5G rollout and companies which have some sort of potential to benefit from it. But for a company like Tata Tele Services, I do not see any specific reason why there should be so much rerating. We need to dig deeper into it and see if we get some insights.”

    Hemang Jani-NEW1-1200ETMarkets.com
    “Typically when you see the broader market doing well, there would be an inclination for people to go out and buy some of these penny stocks or ultra micro cap stocks or smallcap stocks. We should be a little more mindful of what we are getting into rather than getting excited by a Rs 8-10-15 stock moving up by 15-20%” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL.

    What is your view on Tata Tele?
    This is a company which does not have any meaningful business at this point of time. But because of the major holding by Tata Sons, the floating stock in the market is less and now we are hearing a lot of buzz around the 5G rollout and companies which have some sort of potential to benefit from it.

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    There is some excitement but my understanding is that a large part of the capex that companies like Jio and Bharti are going to do will be done internally. But yes, some of the fibre optic companies like Sterlite Technology could stand to benefit because they will have to expand the network. But for a company like Tata Tele Services, I do not see any specific reason why there should be so much rerating. We need to dig deeper into it and see if we get some insights.

    What is going on? Why is there a spike in some of the Rs 50 stocks?
    We have seen how the broader market, the midcap stocks, post June have revived and rebounded very sharply and even when we see the index going down or having a gap up, the broader market in some midcap companies show their own strength and resilience.

    Typically when you see the broader market doing well, there would be an inclination for people to go out and buy some of these penny stocks or ultra micro cap stocks or smallcap stocks. That is understandable because they had also gone through 25-30-40% correction.

    I definitely think that we should be a little more mindful of what we are getting into on the basis of earnings and what kind of management we are talking about, rather than getting excited by some 8-10-15-rupee stock moving up by 15-20%. At some point, one gets stuck and there is no exit for many of these names.

    What is your take on the media? Zee in particular which has been in the spotlight of late with the CCI’s views saying that a lot more scrutiny is required on the Sony merger. Is this routine?
    In the case of Zee we have seen that till the deal is finally concluded, there will be some roadblocks. This has been a little tricky and high beta stock. It may go through with a bit of a correction because of that. Our overall view is that in the world we are living in, there will be some M&As and they would create a monopoly or large market share and we are seeing that even in telecom and many other sectors.

    I do not think this would be a big issue which would really prevent the deal from getting concluded and the large benefits in terms of synergies and the kind of footprints that they have would accrue over a period of time. If there is any correction in Zee because of this news or because of the market itself correcting, we see that as a very big opportunity to buy into it.

    Yesterday Zomato went back above Rs 60 a share, higher by 7%. With the kind of commentary that has been coming in, is it time to turn bullish and turn buyer once again in these stocks?
    There are two different things that we should consider; one is that because of the kind of movement and kind of market cap loss that they have seen, there would be a lot of stuff that is going to be talked about in media and social media, but when it comes to investment, what people want to look at is what sort of valuations are we talking about? What sort of profitability are we looking at? Whatever the management says, people will take with a pinch of salt, having seen the way they have gone about raising money in the IPO and valuations at which they have done it.

    There will be a lot of hype and media noise because of the up and down but in terms of the pure investment proposition, these are not looking that attractive. We would rather focus on the themes and the stories where we see good growth earnings and cash flow.

    In our operating matrices, this is not really fitting in and so we are avoiding some of these companies but from a trading and retail investors’ participation point of view, there could be opportunity for a 15-20% move in either direction.

    The feeling of euphoria has got pricked, realisation has dawned in. Are markets now offering a good entry point into IT stocks where the excesses have been flushed out?
    There are two things: one is that having seen a 25-30% kind of cut from the top and the fact that they are not participating in this entire up move, we are seeing a bit of an overhang in terms of what kind of numbers one can really expect in the near term for one or two quarters.

    At the same time, the worst of the margin pressure seems to be over and if you look at the management commentary and the situation at the ground level, there is a sense that having seen about three quarters of margin deterioration, the worst seems to be over and one might see a bit of an uptick over the next couple of quarters.

    So from a pure investment point of view, companies like an Infosys available at 27 times FY23 and 23 times FY24 definitely makes a case for some sort of a participation. There’s a lot of cash flow, buybacks are often announced. We like it from a medium to long-term perspective but from a pure short-term perspective there could be a bit of an underperformance in the midcap names. Many of them were quoting at a much higher PE compared to largecaps and if you see some disappointment clearly there is going to be some underperformance.

    Which is your favourite Tata stock?
    I have a positive view on Trent and also Tata Motors because we think that even from a short term, let us say this entire festive season that we are going to see in the next two months or up to Diwali, we expect very strong traction for the passenger vehicles and to some extent names like Tata Motors would benefit because of that.

    Even in the retail part we are seeing a very strong traction and Trent has been doing pretty well in terms of operating performance. These are the two specific names where we have a positive view from a medium to long term perspective.

    Why do you like Trent? Some would say the PE multiple is ridiculously high?
    If we look at the retail space, PE multiple would be one aspect but what people want to see is what kind of formats you have, what kind of growth you are delivering and how you are dealing with competition in terms of market share.

    What we have seen in the case of Trent is that for the last two years this was one of the first few companies which actually moved ahead of the pre-Covid level growth and post that also on a higher base, the company continues to deliver a very decent growth.

    We think that the format which they have and the kind of presence which they have across India would be one company which would deliver a 15-20% kind of earning CAGR for next three to five years. This could be a very interesting company to look at.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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