Agencies“Fall in crude price, the progress of the monsoon and any indication of a slowdown in FII selling front or some stability in the global market would provide a lot of comfort to investors. However, it is a bit early to take a call that the worst is over and we are on the way back to recovery,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL.
Was yesterday’s move a dead cat bounce or the beginning of a rally?
After seeing such a brutal selloff over the last two months, the first thought that would come to everyone’s mind is that this is not going to be sustainable and we are not looking for that. That may be true but we need to focus on the fact that crude price has come down quite a bit from the high point. And we are seeing some progress on the monsoon front because initially that was also a bit of a worry for the market.
Depending upon these two or three developments – crude price, the progress of the monsoon and further trend emerging on the FII selling front, any initial indication of some slowdown or some stability in the global market should provide a lot of comfort to investors. So though it is a bit early to take a call that the worst is over and we are on the way back to some sort of a stability or recovery, these are the factors that would determine the immediate trend for the market.
The trade in Chennai Petro is very simple. There is pressure on oil demand, there is a supply shortage and GRMs have expanded but if crude starts coming down, do you think this trade of buying a refiner because GRM or GRM cracks are at an all time high is over now?
The best part of the pure refiners play is over and what really saw a lot of excitement was the fact that because of the high GRMs and that Chennai Petro and MRPL do not have any marketing subsidiary, the kind of profit that they would earn on a quarterly or yearly basis would be quite significant versus their market cap. That brought the focus back on to those themes but the Singapore gross refining margins have started coming down and if the crude price falls further, that would also have some impact.
These are not very largecap companies and so for a technical play, a 2-3% kind of an allocation play definitely makes sense, given the very cheap valuation and the triggers. I am not looking to enter into some of these companies at this price point.
FMCG tried to make a comeback on Monday and could turn out to be the index topper as well. How would you play the comeback story of FMCG and what would be your top picks?
We like the fact that the consumer companies and the companies which are using some of these raw materials – whether it is crude or palm oil or a whole host of other raw materials – the price has come off and the trend is definitely positive for the FMCG companies.
The only important variable that we must look out for is what sort of growth we are going to see on the rural side where there was a bit of a sluggishness and the volume growth picture was not looking great.
Also the FMCG companies have historically been quoting at a very high PE multiple and the current market scenario is not very favourable for such companies. The headwind will remain but having seen a very sharp correction and people being under owned in the FMCG space, we like some of the names like Britannia, Dabur and Marico, where the growth visibility is relatively better given their product portfolio or the rural to urban or export-related market dynamics that they have.
PVR and INOX have got the no-objection certificate from the BSE and NSE for merger. That paves the way for further NCLT approval. When do you think all the approvals are likely to be in place and we will see the combined entity?
Typically a large merger of this kind takes some time and we have seen historically that it takes about one to two years and we do not foresee any major risk to that. Apart from that, on the business front, because of the kind of resurfacing of the Covid cases, there will be some impact but depending upon the kind of pipeline which is there on the movie front and the kind of disruption which is there because of the OTT and other platforms, there would be some negative impact on the earnings.
But as a core theme, this is something that we would be very positive on and particularly PVR has historically commanded a very high PE multiple and the worst seems to be over in terms of people going out to watch movies etc. So definitely it would be a good small allocation stock.
What about your outlook on Jain Irrigation but the fact that the news has come in that they are going to merge their international business with a company that is backed by Singapore based Temasek? The new unit at full capacity is expected to clock in sales of Rs 350 crore plus?
We do not track this one but purely from a monsoon perspective, some of the names where we have a positive view are Coromandel International, United Phosphorus and UPL. These are the companies where we like the core business and if we have good traction on the monsoon over the next few weeks, then these companies will see renewed buying interest.
Zomato went public at Rs 75 and went up to Rs 150. That has become Rs 70. What is the real price of Zomato?
So to be very honest, Zomato promoters themselves would not know what shape and business model they would end up having over the next three or four years. Everybody is trying to build a platform here and they were fortunate enough to really bring out the IPO when the market environment was very supportive for the IPOs and post listing, there was so much euphoria and excitement around it. The moment of truth has come for many of these IPOs and we are seeing that they are nowhere near any sort of profitability in the near term.
The business model keeps evolving and the only good thing that we have heard about some of these companies is that they have decided not to burn more cash in doing senseless acquisitions and that definitely would give some relief. But to be very honest, the current market is not going to be so generous to some of these companies where there is absolutely no profit visibility. Yes, at some point, people may get a little excited by the fact that it has fallen more etc. But I would like to go for some of the listed largecap names where you see a fair bit of growth visibility and you know that the downside will not be beyond may be 10, 15, 20% having seen this kind of a fall but we cannot say the same for many of these IPO names.
Was yesterday’s move a dead cat bounce or the beginning of a rally?
After seeing such a brutal selloff over the last two months, the first thought that would come to everyone’s mind is that this is not going to be sustainable and we are not looking for that. That may be true but we need to focus on the fact that crude price has come down quite a bit from the high point. And we are seeing some progress on the monsoon front because initially that was also a bit of a worry for the market.
Depending upon these two or three developments – crude price, the progress of the monsoon and further trend emerging on the FII selling front, any initial indication of some slowdown or some stability in the global market should provide a lot of comfort to investors. So though it is a bit early to take a call that the worst is over and we are on the way back to some sort of a stability or recovery, these are the factors that would determine the immediate trend for the market.
The trade in Chennai Petro is very simple. There is pressure on oil demand, there is a supply shortage and GRMs have expanded but if crude starts coming down, do you think this trade of buying a refiner because GRM or GRM cracks are at an all time high is over now?
The best part of the pure refiners play is over and what really saw a lot of excitement was the fact that because of the high GRMs and that Chennai Petro and MRPL do not have any marketing subsidiary, the kind of profit that they would earn on a quarterly or yearly basis would be quite significant versus their market cap. That brought the focus back on to those themes but the Singapore gross refining margins have started coming down and if the crude price falls further, that would also have some impact.
These are not very largecap companies and so for a technical play, a 2-3% kind of an allocation play definitely makes sense, given the very cheap valuation and the triggers. I am not looking to enter into some of these companies at this price point.
FMCG tried to make a comeback on Monday and could turn out to be the index topper as well. How would you play the comeback story of FMCG and what would be your top picks?
We like the fact that the consumer companies and the companies which are using some of these raw materials – whether it is crude or palm oil or a whole host of other raw materials – the price has come off and the trend is definitely positive for the FMCG companies.
The only important variable that we must look out for is what sort of growth we are going to see on the rural side where there was a bit of a sluggishness and the volume growth picture was not looking great.
Also the FMCG companies have historically been quoting at a very high PE multiple and the current market scenario is not very favourable for such companies. The headwind will remain but having seen a very sharp correction and people being under owned in the FMCG space, we like some of the names like Britannia, Dabur and Marico, where the growth visibility is relatively better given their product portfolio or the rural to urban or export-related market dynamics that they have.
PVR and INOX have got the no-objection certificate from the BSE and NSE for merger. That paves the way for further NCLT approval. When do you think all the approvals are likely to be in place and we will see the combined entity?
Typically a large merger of this kind takes some time and we have seen historically that it takes about one to two years and we do not foresee any major risk to that. Apart from that, on the business front, because of the kind of resurfacing of the Covid cases, there will be some impact but depending upon the kind of pipeline which is there on the movie front and the kind of disruption which is there because of the OTT and other platforms, there would be some negative impact on the earnings.
But as a core theme, this is something that we would be very positive on and particularly PVR has historically commanded a very high PE multiple and the worst seems to be over in terms of people going out to watch movies etc. So definitely it would be a good small allocation stock.
What about your outlook on Jain Irrigation but the fact that the news has come in that they are going to merge their international business with a company that is backed by Singapore based Temasek? The new unit at full capacity is expected to clock in sales of Rs 350 crore plus?
We do not track this one but purely from a monsoon perspective, some of the names where we have a positive view are Coromandel International, United Phosphorus and UPL. These are the companies where we like the core business and if we have good traction on the monsoon over the next few weeks, then these companies will see renewed buying interest.
Zomato went public at Rs 75 and went up to Rs 150. That has become Rs 70. What is the real price of Zomato?
So to be very honest, Zomato promoters themselves would not know what shape and business model they would end up having over the next three or four years. Everybody is trying to build a platform here and they were fortunate enough to really bring out the IPO when the market environment was very supportive for the IPOs and post listing, there was so much euphoria and excitement around it. The moment of truth has come for many of these IPOs and we are seeing that they are nowhere near any sort of profitability in the near term.
The business model keeps evolving and the only good thing that we have heard about some of these companies is that they have decided not to burn more cash in doing senseless acquisitions and that definitely would give some relief. But to be very honest, the current market is not going to be so generous to some of these companies where there is absolutely no profit visibility. Yes, at some point, people may get a little excited by the fact that it has fallen more etc. But I would like to go for some of the listed largecap names where you see a fair bit of growth visibility and you know that the downside will not be beyond may be 10, 15, 20% having seen this kind of a fall but we cannot say the same for many of these IPO names.
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(What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
...moreDownload The Economic Times News App to get Daily Market Updates & Live Business News.
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
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