Pankaj Pandey’s tips: Don’t try to catch the falling knife but continue SIPs

“Reliance is in a sweet spot. On most of the business segments, we have a positive view and Reliance overall has been supporting the market compared to the rest of the tier one largecaps. One should stay bullish on Reliance,” says Pankaj Pandey, Head of Research, ICICIdirect.com

What are you telling your clients? How should they ride the storm?
Domestic macros are still sort of good, even corporate earnings, what we witnessed last quarter, were quite okay. In fact, we have a 1% EPS revision but global macros continue to be very volatile even with the Fed policy, while the volatility has come down but till the time, energy prices especially crude does not come down, we would not expect a meaningful bounce in the market.

We are advising clients to stay on the sidelines. SIPs can continue because it is a good market for everything given the fact that there is a decent amount of cut across sectors, but till volatility subsides and crude prices come down, it is still difficult to catch a falling knife. That is why we are advising clients to stay on the sidelines.

What is your view? Metal stocks were the real stars of 2021 given what is happening on the macro level. are you telling your clients to get out of metals?
Not at all. While in steel as a segment, there is a decline of about Rs 15,000 per tonne in terms of prices, but I think coking coal prices will also come down and we have seen a good amount of crack, but aluminium as a space looks a lot better to us, especially a company like Hindalco because our view is that aluminium as a commodity is expected to remain in deficit and which is why Hindalco is looking relatively a lot better.

But having said that, the bigger impact will be when China normalises because we are still sceptical in terms of how China would pan out given that fresh Covid cases are coming up. So till that time, challenges are going to be there. On the export duty, our sense is that while these are measures to curb inflation, these are not long term and which is why probably as and when the government realises that the inflation is under control, these measures will be taken back, the way it happened in 2008. We might see a good bounce then but till the time China does not normalise, metal will continue to face a bigger brunt compared to the rest of the sectors.

Reliance Industries is higher by 17% for the year. There is now a consensus building that this stock could hit Rs 2,900-3,000 a share. What is your outlook on Reliance Industries?
Reliance is benefiting from the current volatility, especially given the fact that the GRMs are still at elevated levels for this quarter. The GRMs are at about $20 per barrel, especially Singapore, so obviously that segment for Reliance is expected to do well in this particular quarter. We did not see that kind of a bump up last quarter.

Similarly, gas production is also expected to sort of get ramped up and will reach about 30 mmscmd and also gas realisation is expected to be higher. Telecom business continues to do well and on the retail side, this is first time they crossed a high sales mark and since post Covid, most of the retailers have recovered well, we are expecting 25% CAGR growth in retail.

So overall, the company is in a sweet spot. On most of the business segments, we have a positive view and Reliance overall has been supporting the market compared to the rest of the tier one largecaps. One should stay bullish on Reliance.

From Policybazaar to Paytm to Zomato, have you been a buyer or recommended a buy anywhere after the recent correction?
Actually not so. The entire new listing is still looking expensive and in some of them, we are still not very comfortable in terms of how they are going to make profit and most of them are trading in excess of 10 times sales. So a combination of these factors along with the kind of volatility we are seeing, we are still not bullish on some of these names. We are still not tracking them very actively. The next leg will take time and at this point in time we are not really tracking any of the new listings because our sense is that even with the correction, the valuations are still on the higher side compared to the listed space where we have at least decent predictability of turnover and bottom line.

When inflation is here, value retail will do well. Then why isn’t a stock like DMart outperforming?
Valuation wise, DMart has been expensive and in some of the categories like FMCG, recovery could take a bit longer. Overall, the company has been doing a lot better and there is no letdown in terms of overall growth or store expansion. But yes, DMart has taken a bigger sort of a beating compared to say a Trent. But from a number perspective, we have not revised downward numbers for both the companies.

Retailing is looking a lot better from an organised perspective because when one looks at a big market like the US, retailing in terms of market cap is commanding double digit. But in India, it is hardly 2-3% odd. So from that perspective, retailing looks a lot better, especially apparel and which is where Trent is looking a lot better.
Most of the retailers are looking to double the space addition compared to what they have done in the last three, four years. Despite that, Trent continues to do well, DMart despite a decent set of numbers has taken a bigger a beating. Retailing obviously looks better compared to the other sectors but we do not have very exact reason why DMart should have corrected more.

What is the best way to capitalise on the IPL rights? Is it a good time to buy into a media company like TV18?
The only beneficiary according to us will be USL. Sun is something where we are not very comfortable with given that despite the decline in profitability, the promoters’ salaries are still at elevated levels. Now for companies which have won the ,rights we are still not very clear in terms of how they will make money. It could be a winner first kind of a scenario and which is where, according to us, the only beneficiary would be USL which is shifting their portfolio towards the premium side.

Overall that is the only beneficiary while the rest of the companies we are still not very clear about given one of the biggest advertisers like FMCG and the overall challenge these companies are facing, we may not see an elevated level of spending coming from them. So expect high ad rates but how that would sort of percolate, we still do not have an answer for.

I want to talk about a stock which FIIs first adored and now are throwing away. It is HDFC Ltd, is this the overhang of the merger which is forcing them to sell?
Obviously yes. When you have a developer book of say about Rs 25,000-30,000 crore odd, that needs to be done away with for the merger to happen and when HDFC gave an outlook for 15% CAGR growth, that is again a bit lower compared to what they have grown historically.

So on a combined basis, it does not really enthuse the market including us and till the time FII selling continues, the entire BFSI or even IT as a pack, despite a decent risk reward ratio, despite decent growth outlook is not expected to perform.

Unlike capital goods companies, these are not heavily owned by FIIs. The price performance is relatively better in bearing companies or capital goods companies because of the fact that they are not heavily FII owned. I think it is the FII selling which is having a bigger impact despite decent growth credentials for the entire BFSI or IT space.