Look to buy TVS Motors; ICICI Bank to lead bank pack for next 2 years: Dilip Bhat

Dilip Bhat, Market Expert, says banking appears to be the pick of the lot. ICICI has very decisively proved that it is now the leader in the banking pack. It should also get a premium, which up till now, HDFC Bank was getting. ICICI Bank will continue to rule the roost for maybe next one and a half to two years and possibly there is still a good amount of steam left in ICICI Bank. Not to say that HDFC Bank is not good. Even that holds a good promise, particularly in the private sector. Of course, in the PSU sector, SBI looks pretty interesting.

There is no dearth of news flow today. Big numbers are coming in and lots of newsmakers as well. What would you like to start off with?
I would like to say that the market is finding some kind of stability and consolidating and trying to move up. The bigger question still is whether we will get the tailwind of the FIR, because without that, obviously, we all know that markets will continue to be difficult. At the same time, the way the bank results have come out, particularly ICICI, it is very clear that banking is going to take leadership, notwithstanding the fact that this is one of the most over-owned sector amongst the FIIs. That means if they have to sell, they will be selling from banking and IT because these are two sectors where they own in a very big way.

Banking clearly looks the pick of the lot. ICICI once again has very decisively proved that it is now the leader in the banking pack. It should also get a premium, which up till now, HDFC Bank was getting. My take is that ICICI Bank will continue to rule the roost for maybe next one and a half to two years and possibly there is still a good amount of steam left in ICICI Bank. Not to say that HDFC Bank is not good. Even that holds a good promise, particularly in the private sector. Of course, in the PSU sector, SBI looks pretty interesting.

I am not sure what is chugging along for the railway stocks. RVNL has surged 17%. Let us pull up the two-three day chart if we can and see the kind of momentum we have seen on that counter 103 now. There has been a gain of 40% over the last seven days. RITES too is having a great day. Would you be a buyer in the railway companies, the PSUs etc.?
I think a momentum play is still very much on course as far as these companies in the PSU sector are concerned and more so with the railways considering that overall, what they are talking about is very ambitious. My only worry as far as this PSU sector is concerned, is that the moment railways and some of the other PSU stocks start doing well, the government which is strapped off cash, goes for an IPO and there will be an OFS.

So that overhang will always remain as a potential threat in an PSU which otherwise is doing well on the expectations of good order book and maybe the performance may come in the near future.

What about your outlook on Nestle and the kind of earnings that the company has delivered? It has been pretty strong. The volume growth has been encouraging. We have seen rural growth as well that has been fairly promising. Do you believe that the prospects are looking fairly robust now for Nestle going down the line?
So yes, Nestle has beaten the expectations hands down whether it is QOQ numbers or YOY numbers. They have all been pretty confidence inspiring. My take on the FMCG is that the rural part is where they were facing a problem in the past one-one and a half years in terms of the demand. If that returns back, which is what looks like very much possible over next three to four quarters, plus the fact that the inflation as and when that softens, particularly for some of these companies,

There will be two very strong tailwinds, the inflation softening and the revival in the rural demand. So there can be a good momentum playing FMCG across whether it is Levers, whether it is Britannia, whether it is Nestle. Some of these companies possibly will do pretty well over next three to four quarters but more as a tactical momentum play because otherwise the valuations continue to be prohibitively expensive.

Crompton Consumer, the leadership change that has happened there and Ipca Labs, has acquired Unichem as well.
As far as Crompton is concerned, on a longer-term basis, it certainly deserves a look. But I am not in a hurry to buy this particular stock. The fundamentals have yet to play out in a very significant way. Maybe this leadership change is something which possibly is going to make some impact. I am not too sure about that.

But I would not be in a hurry to buy even otherwise Crompton CG Consumer. Now, as far as Ipca is concerned very frankly, I have not gone through the details. The way they have taken over Unichem is going to be the impact of that. I am afraid I am not in a position to comment on what is going to be the impact on Ipca Laboratories, in what way it has become so negative that markets are not reacting positively. I am not in a position to comment.

How are you looking at the volume growth and what could potentially be the next catalyst for the stock when it comes to earnings?
In this segment, both Bajaj Auto and TVS possibly look pretty good. Bajaj is almost at an all-time high but we all know that in Bajaj Auto, basically there are two factors; one, is the increase in the percentage of three-wheelers as an overall contribution to the sales. That is something which is going to change the profit profile as well as the exports to some of these countries. Both the factors have been the laggards for them in the past almost a year.

The two-wheelers are there but that would not really move the needle. These two factors, three wheelers as well as the exports, will help significantly. The prospects of both the products looks pretty good. So I think while Bajaj Auto has already gone up quite a bit, I would still hold on to it from the current levels. But I would look to buy TVS Motors from the current levels.

What are your top midcap recommendations?
The pharma pack looks pretty interesting from current levels. They have performed quite badly in the last one year. Some of the companies from the pharma pack are what we will be looking forward to. In the white goods segment also, possibly led by Voltas and Blue Star, they should do well, even Whirlpool looks pretty interesting from the current levels. These are just some of the idea that we like at the moment. We would like to focus on some of these stocks.