Still negatively biased in market; have 6 picks in defence, cap goods & infra: Nischal Maheshwari

“I continue to remain negatively biased in the market. I believe when the recession hits the US which is likely to happen in the Q3 of the calendar year, that is the time you are going to see the bottom of the market happening and that is what we will see in the US and simultaneously we will see it in India also,” says Nischal Maheshwari, CEO, Centrum Broking.

Maheshwari further says that in defence, he continues to remain positive on HAL and in the private space Solar Industries. On the capital goods side, top pick remains Triveni Turbine and Thermax in that sequence. In infrastructure, it is L&T among largecaps and PNC Infra in the midcaps.

It is getting harder to predict the market because we are just stuck in this range from the last eight weeks now. How would you describe the market, without using the word range bound?
For a couple of months now, I have been negatively biased and I continue to remain negatively biased in the market. I still believe that basically both in the US which has been the main driver of the world markets there is some way to go on the downside and similarly in India. I believe when the recession hits in the US which is likely to happen in the third quarter of the calendar year, that is the time you are going to see the bottom of the market happening and that is what we will see in the US and simultaneously we will see it in India also.

The last 40 years’ history has shown every time the recession hits, basically markets correct and there are deep corrections and all world markets follow. That is what my bias is in the current year towards the negative side.

What is out of jail card then? When do you think bulls will come out of the jail? What will be the trigger?
The trigger would be basically pivoting in the US, pivoting of the interest rates which I believe at least a couple of more 25 bps hikes are there and thereafter it is going to be a bit of a pause. So when the Fed starts cutting interest rates in the US, that is when I believe bulls are going to start coming out of wherever they are hiding for the moment.

I would like to draw your attention to a couple of stocks, InfoEdge, just 10% decline, City Union Bank, 10% decline, as did Lupin. Do you track any of the three names I mentioned because all of them were in a sense a casualty of bad news yesterday?
We track all of them and InfoEdge as I was hearing just now. This is a fallout of VC funding and I do not really worry about that because their investments are in a lot more companies and they have reasonable history to show that they understand what they are doing. Their investments are unique ones today and even on the listed side, people find value in them. InfoEdge is clearly on the right path, no worries around there. There will be a couple of quarters here and there but they are on the right track.

We are worried about Lupin. Basically every quarter there is some or the other issue with Lupin and there are profit warnings, top line issues. As far as CUBK is concerned, totally out of the blue, we never expected this kind of a writeoff basically and this has been advised by the auditor. One needs to see whether this is the last quarter of kitchen sinking or more will come. I have always seen when one cockroach appears, there are many more. I would be cautious on CUBK.

Those were the casualties of yesterday but the casualties of today could very well be Zee Entertainment as well as Campus Active Both of these counters have reported disappointing numbers. What should one do regarding these counters?
I have looked at both. I think Campus has still some way to go. We have been highlighting this at the bottom of the pyramid, basically where Campus and Relaxo kind of companies are there. The inflation has taken a big hit basically on the incomes of the people and continues to be very potent because yesterday we saw CPI is once again up and this is now up almost highest in the last 12 months. This is a major cause of worry. Till inflation comes off, I do not see any respite out there.

Coming to Zee, once again the same thing. Last quarter could have been a one off where the advertisement revenues have fallen dramatically because most of the FMCG companies did not see much growth coming or much recovery happening on the rural side. That’s why they have cut their advertisement aggressively, but going ahead, I see Zee in a better spot given that the merger will come through and definitely there is value in a merged entity.

This calendar year, returns are 3% down for the Bank Nifty, while being 5% up for the IT index. Nifty this year has remained absolutely flat. Sometimes the crowded trades get challenged. The crowded trade of 2022 was long IT, avoided banks and that reversed. The crowded trade of 2023 began to avoid IT, stay with banks and that is also reversing.
Obviously over ownership and under ownership has played a big role there and if one looks at it, the maximum amount of selling has come from the FIIs during this year. They were large owners of banks and have been continuously selling and that prompted even the domestics to sell off and as the outlook became more murky for the current year, people started trying to identify areas where they could hide and hide comfortably and IT was the best spot to be. The largecaps had corrected dramatically whether Infosys or TCS, and had corrected. IT was really well positioned at the beginning of the year and I think funds are increasing their positions.

The kind of reaction we saw for instance to a City Union Bank or a Balkrishna Industries’ numbers which no doubt were disappointing but perhaps a little overdone?
The outlook has been negative in the market for almost one and a half to two months and the market is totally unforgiving. You show just a bit of slippage and the market is after you with a hammer and tongs. This is the part to do with the fact that you are very highly positioned in terms of valuation and there is no scope for any mistake; one mistake and the people are just looking to sell off. So the outlook remains weak and uncertain and that is why people are finding reasons to cash out. That is the trend. I do not see that just one quarter of bad results warrants this kind of punishment for these stocks but unfortunately, the market is in an unforgiving mood at the moment.

The numbers from Medanta, Global Health, were quite impressive. Revenue growth was around 18%. Margins have been maintained. You have the occupancy levels going up and even for Krsnaa Diagnostics, while the margins have slipped, their top line growth has been strong. What would be your top bet within the pharma space?Would it be hospitals, diagnostic or the CDMO plays?
We are going back to saying that pharma is the one basically. Within healthcare, pharma is what we are now betting on again because we have started seeing some recovery in the US market. Margins seem to be stabilising. Companies which are focussed on the specialised front, have started doing well. So, among the three, at the moment we are seeing pharma as a sector and there Sun remains to be our top pick.

Within the entire manufacturing theme as a whole, just taking a look at the overall defence space as well, are there any interesting stocks that come to mind?
Yes definitely. This is one space which has done very well and I continue to believe that we are seeing the first signs of private capex coming in. Look at the government's commitment of Rs 10 lakh crore, an unheard of number, putting almost 3.5% of the Budget into capex, that is a very big and bold step by the government.

So I am very positive on the whole outlook as far as the manufacturing and infrastructure space is concerned and in defence also. Yesterday, the prime minister announced that defence export is where he is going to focus on as a government and they are targeting five billion worth of exports by 2025 or 2030. These are all very positive indicators. The government is totally supportive of the sector. What are our top picks in this? In defence, we continue to remain positive on HAL and in the private space we like Solar Industries. These are our two top picks as far as defence is concerned.

On the capital goods side, our top pick remains Triveni Turbine and Thermax in that sequence. Infrastructure, our top pick remains to be in the largecaps Larsen and then PNC Infra in the midcaps. So the whole sector we like a lot actually.

What are your recent additions to the portfolios and to your clients in this year.
In the last year-and-a-half, we have been recommending three or four stocks. We bet big on basically India opening up and tourism becoming a big space. So we had this luggage company Safari which we initiated recently and it has done very well. We have been recommending it for the last six months.

IndiGo was another one which we have been pushing. Then I was talking about Solar earlier that has been another one, Triveni Turbine. These have been the stocks which we have been pushing with our clients.