Do Chennai Petroleum & MRPL make better bet than RIL, HPCL or BPCL now?

“This entire rally is driven by the capex and credit growth and consumption. We like this cycle and we think that ABB, Siemens and L&T are the few names that can be played in a big way. L&T is the company to go with as far as this cycle is concerned,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL

Where are you going to be placing your bets for this uptick which is going to come from the Singapore GRMs? Is it going to be the OMCs, Reliance or any other?
The way the Singapore GRMs have shot up, some of the standalone refineries could benefit, particularly Chennai Petroleum or MRPL. I think the integrated ones – be it Reliance and other larger oil marketing companies like HPCL, BPCL – may not see a significant benefit because there is not much clarity about how things are going to shape up in terms of the overall marketing margins.

For Reliance Industries, there are two other aspects also which would have some negative repercussions. The way the windfall tax part is playing out, is not good and Reliance may not really benefit as much from this as some of the standalone refineries. Anyway the midcap sector and stocks are in far more momentum and it would be good to participate in these names rather than the other OMCs.

What is the future of some of these IT stocks given the kind of underperformance that we have seen? What about midcap IT or are you sticking with the leaders within the space?
A large part of the rally is driven by the domestic theme – auto, banks and a whole host of consumption names. Global plays like IT and pharma have been laggards. So from a pure momentum and trend point of view, that is not a sector or a pocket that people would be very happy to participate in.

However, one has to remember that from a medium to long term perspective, these corrections –as large as 25-30% for the large companies – provide good entry points. You may have to hold on for some time when things are bad but overall the visibility is pretty good. We are looking at 12-13-14% growth in terms of revenue for the top notch companies and our comfort is more with the largecap names like Infosys, TCS, HCL Tech versus midcap names where valuations are still on a much higher side.

Any views on ABB in particular?
This entire rally is driven by the capex and credit growth and consumption. These are the three pockets which are at the backbone of this entire rally and as far as the capex cycle is concerned, we have been talking about it for the last almost 10 years. Every time, there was a hope and an expectation that the consumption cycle is in place and capex is going to start. But it did not take off in a big way for the past many years.

Now again we are going through the same stage where there are initial indications, the order flow and the management commentary is sounding positive. So when the cycle is about to turn we should not be looking at the valuations because the valuations will not reflect that and once the growth cycle kicks in, that is when the valuations will look far more attractive.

We like this cycle and we think that ABB, Siemens and L&T are the few names that can be played in a big way. L&T is the company to go with as far as this cycle is concerned.

Within the midcap capital good space, if you do not have the choice to buy ABB, Siemens or L&T, where else would you look?
One can look at some of the smaller engineering companies like AIA Engineering and a lot of other capital goods companies. The point is that since we do not cover many of these companies, I would not be able to put out any specific names or recommendation but this entire capital goods cycle is not going to get confined to only the largecap names.

Yes, they will definitely have a larger chunk of the entire growth but the whole host of midcap companies – equipment manufacturing companies or suppliers – would definitely benefit and we should participate through midcap or small cap companies also.

Give one longer term stock idea and why do you like it?
At this point, Coal India is something that we like. The way the entire European energy crisis has unfolded, the focus is shifting back to coal and worldwide we are seeing a very strong growth in that. We also feel that in the domestic market, the e-auction pricing has really gone up because availability is much less.

Our feel is that the entire story of pricing-led volume growth will play out very well for Coal India. It has been a PSU company. I think from a medium to one-year kind of a perspective, this could be one stock that can give a 25% kind of an upside from current price point.