Sanjiv Bhasin on 5 stocks that can give stellar returns

Divi’s Lab and Sun Pharma can be outperformers. These are breaking out for a new cycle and the earnings can be expected to surprise on the upside, says Sanjiv Bhasin, Director, IIFL Securities

It seems a little bit of focus is coming back to some of the private sector financials like Bajaj Finance. What is your view on earnings season so far?
A large part of the earnings have been already priced in and there hasn’t been any negative surprise so far. The provisioning has gone up and they have suffered a bit because of the extension of the lockdown, particularly in the Maharashtra region, But Bajaj Finance has weathered the storm well. The stock has been a bellwether and has led from the front. I would think that Rs 4,700 was a very important base and that becomes key if you have to be in the large cap names which we think you should now. Bajaj Finance, which is a large NBFC, fits into that.

But some of the smaller NBFCs have also weathered the storm well, particularly L&T Finance and M&M Finance. These are two of our top picks. They are also very good proxy plays to growth in two-wheelers and tractors and they could be better outperformers than Bajaj Finance.

But Bajaj Finance, at these prices, will see a lot of buying because people would like to be in quality names. Right now, we also like to be in quality largecaps because with the Nifty at 14600, the room for error in midcaps may be a little less.

In case of the auto basket, both auto and ancillary stocks seem to be gathering momentum? Tata Motors is doing very well.
Correct. Who would have thought of this six months back when Tata Motors was below Rs 100? A disclosure, Tata Motors and Ashok Leyland have been two of our top picks all the way from Rs 120 and Rs 50 and they have been relative outperformers because we expected that the commercial vehicle market will bottom out much faster. Even though the recovery will be back ended, you will see a lot of positives.

Tata Motors is going up not just because of the Tesla talks. It is more due to the commercial vehicle (CV) cycle turning and that is evident in some of the CV lenders. OEMs have been in the pink of health whether it is Balkrishna Industries, Apollo Tyres or a Motherson Sumi. The whole auto basket is the most coveted point right now because consumption is back and rural incomes have given another boost with the tractor and two-wheeler stocks doing extremely well.

So stay focussed, but right now, the valuation is not on our side. We have seen a wall of liquidity and that will continue to drive the names which are hitting new highs. Tata Motors looks all set to touch Rs 295-300 and we would again advise doing a SIP rather than outright buying because the risk reward may not be favourable before the results.

Asian Paints, Bajaj Auto results are coming out today. This earnings season is not really about growth but it is about valuations that these stocks are already clocking. Do you agree?
Bajaj Auto and Asian Paints are getting bigger. Asian Paints keeps getting more and more expensive as it makes more forays with market share in the decorative segment.

Bajaj Auto numbers have been a result of huge cost cutting and their export-centric model has played out very well. But I would be a little more centered on pharma names.There may be a huge surprise on some of the pharma earnings. A disclosure, two of our largecap top picks in pharma pack -- Divi’s Lab and Sun Pharma -- can be outperformers. Divi’s and Sun are now breaking out for a new cycle and I am very sure the earnings will surprise on the upside. Divi’s is headed to Rs 5,000 this year and Sun to over Rs 750. With Nifty at over 14,600, we want to be a little less beta on autos and metals which have run up far in excess of valuation. So, we will focus more on pharma, which would be one of the better performing sectors along with IT in 2021.

For an investor, what is in store from a stock like Asian Paints or Pidilite? The PE multiples are almost 100! Do you think an investor is better off giving Asian Paints a skip? It is a great company but it may not be a great stock for the next couple of years.
The people who have doubted Asian Paints and Pidilite have actually missed out and it is the same with Nestle. They do not trade cheap but the market psyche was that these are only monopolies getting stronger and it is the same case with some of the FAANG stocks where only market share has been gained. I agree with what you are saying. We cannot justify this price for Asian Paints but the problem is, on the ground level their unique model has suited all houses. So the myth that they would be the second hand paint and the cheaper paint is history. Their decorative segment growth has been one of the best.

Two companies which have never diluted equity are MRF and Asian Paints and they have only kept getting bigger by size and by market cap. You cannot see much delta, much more beta on other stocks but as a core portfolio holding, very few people will let go of Asian Paints or MRF. So the house is divided. If you are looking for blue chips, then Asian Paints is one of them but if you want to make money, then maybe IGL, MGL are going to give you a 50% run given that gas utilities are in the best space.

Is there money to be made in Britannia after the recent bout of underperformance?
It is one of our top picks. We have had it in our portfolio and we continue to think that Dabur, Britannia and Nestle -- all three will be huge market creators. Britannia underperformed because there were some corporate disclosures where they were in corporate lending. Now that the company has clarified, it is a standard procedure. There was no other incident. The market got a little wary. The Morgan Stanley report says the rural reach of Britannia is there to stay. A lot of competition is coming from Nestle and from ITC. Sunfeast is a very big brand but you have to be part of all of them.

So ITC, Nestle, Dabur and Britannia should be part of your portfolio because you cannot miss the consumption market which is raring to go. A disclosure, we are overweight on Britannia and Dabur.

Any mid-tier company you are particularly confident of?
Take it with a pinch of salt. At Rs 25, nobody wanted to touch IDFC First Bank. It has doubled to Rs 50. I can stick my neck out that this Diwali, it will go to Rs 70 and above. IDFC First is a big turnaround. I am very bullish on Mr Vaidyanathan. The book has done well, the CASA ratio, the net interest income and the transition from an MSME to a retail book.

IGL and MGL have a lot of potential because the boom in autos has a cascading effect on the CNG, PNG side and in Delhi, Indraprastha Gas Ltd will see a price hike in the next few weeks. So, IGL fits the bill perfectly for a target of Rs 750. Among large caps, it has to be Divi’s Lab, Sun Pharma and ICICI. These five will make up a very big chunk of your portfolio and you could look for stellar returns.