Neeraj Dewan on 2 dark horses that may emerge from Tata stable next year

TCS would be a stock which may outperform in the next one year because we have seen it underperform. Another dark horse there can be Tata Motors. We have seen pressure there because of the UK and China and JLR not performing. Any improvement in the situation in China opening up in the next couple of quarters or the UK improving in the next couple of quarters, So, next year, if these two things are going to happen, Tata Motors can be one surprise, says Neeraj Dewan, Director, Quantum Securities.

What is the outlook on the entire IT space? Also where are we currently in the market?
The kind of move that we have seen from the banks were anyways keeping the NSE and BSE on fire and in the last few days, even the underperformers started to perform. IT which was underperforming is performing now; Reliance is performing; HDFC twins are performing. All the underperformers starting to perform is resulting into this kind of a move on the Nifty and the Sensex.

I feel IT, even after the run up that we have seen, have underperformed for some time. People are not having that kind of position in IT and maybe there is still more steam left in IT though after the move, not only stocks like Infosys, HCL Technologies have moved up but some of the midcap IT names like KPIT or LTTI can also see some more upside from these levels.

So there is some more steam left but the best part of investing is that we need to invest when the chips are down and when everyone was going negative on IT. The Rs 1,390-1,400 levels on Infosys were a good level to invest in. From a trading point of view, still some steam is left.

What would be your top large cap and top midcap long term recommendations for next year and what would be the rationale?
In the largecap space, I still like the auto names. I see good demand in Mahindra & Mahindra and good sales improvement. This quarter and next, margin may improve much more because a lot of the raw material pressure is coming off and the semiconductor issue is also getting resolved slowly. So, there may be good margin improvement. That stock, compared to the other names like Maruti, is still reasonably priced.

In the largecap space, that can do well and the other one would be L&T and there also, there can be good margin improvement and execution pickup. We saw decent results and the order book is very strong. So these two names in the largecap space can do well.

In the midcap space, there are a lot of opportunities with the names where there was margin pressure due to high cost of raw materials.

Among textile stocks, there is Lux Industries which took some inventory hit this quarter. Going ahead in a quarter or two, that inventory hit will get over and the raw material pressure will ease because the cotton prices have come down. That will also result in better margins. Even in the last couple of quarters, there was pressure on the bottom line but their top line was still very strong. In that category, Lux Industries may outperform for the next one year.

Siemens came out with its numbers this week. Would you pick stock versus some of the other capital goods majors because analysts were of the view that the overall revenue growth, the order booking was a little bit lower than the consensus estimates and compared to what peers had reported?
Yes, there was some disappointment there. The stock has run up ahead of what the numbers were. There may be some consolidation at these levels. Siemens is a good long-term investment but in these levels, one needs to wait for it to correct a bit to take a fresh entry into the stock.

I would really not look at Siemens right now. In the capital goods engineering space, L&T is one stock which is very well positioned. It has a good order book. Margin improvement has already started happening and there will be other smaller names there like Kalpataru Power where also the order book is very strong.

JMC, its subsidiary, is getting merged into it and become a much stronger bigger company and so there also there will be some merger benefits coming as far as margins are concerned. So, L&T and then Kalpataru in the midcap space. I would like these stocks in the capital goods engineering space.

This deal is brewing between Tata Consumer and Bisleri. What do you make of it and in Tata stable, what would be your top bet?
It is a very reasonable deal, not very expensive. Bisleri is a profitable company with a good top line. Tata Consumer will consolidate its position in the packaged water space. They already have Himalayan brand and Bisleri also. If this deal happens, it will be good for Tata Consumer and as far as the Tata Group is concerned, we have seen good moves happening from the likes of TCS recently.

So, TCS would be a stock which may outperform in the next one year because we have seen it underperform. Another dark horse there can be Tata Motors. We have seen pressure there because of the UK and China and JLR not performing. I think any improvement in the situation in China opening up in the next couple of quarters or the UK improving in the next couple of quarters, So, next year, if these two things are going to happen, Tata Motors can be one surprise.