After defence, will railways theme pay dirt next? Hemang Jani answers

"People are looking at the PSUs with a fresh perspective. The Railways being a big capex story, some of these companies which are the beneficiary of higher capex could get benefited," says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL


On Nifty & Bank Nifty
The overall sentiment, particularly buoyancy, is pretty much visible in our market. As we move ahead in the earning season, people are getting a little more confident about the earnings trajectory for the next couple of quarters and we have also upgraded FY23 earnings marginally. So, both in terms of earnings and flows, our markets are extremely well positioned and that gives us a lot of confidence that one does not have to worry too much in terms of the global markets or other factors which are there and use any small dips in the market as a buying opportunity as the overall outlook continues to remain quite positive.

On commentaries coming from new-age tech companies & whether there is a buy in Nykaa, Paytm or PB Fintech after the mammoth fall
The stocks have corrected quite sharply and now there is a 360-degree change in the entire narrative around the fintech companies and the valuations that they were getting, both in the US and in India. We have also seen how the liquidity position has changed in terms of the rates going up. People are looking out for the companies with the better cash flow profit visibility and in that template some of these fintech companies are not fitting in.

So having seen a cut of 50% to 70%, some people might get a little tempted to look at them afresh and some of the companies are delivering relatively better numbers, particularly Paytm. In the last two quarters, there is some improvement in the incremental data points that we are seeing and same is the case with Nykaa. Our take is that we are far away from a point where there is going to be a conviction about profitability.

So while they may provide a 10-15% kind of pop, the data points since their valuations are still extremely stretched and profitability is not in sight. We would not be comfortable giving out a buy recommendation but as I said, a small pop here and there is possible.

We have seen a real stunning comeback in some of the railway stocks whether it is RITES, Texmaco, RailTel or RVNL. After defence, is railways the next one to move higher? If yes, why?
As a part of the entire PSU theme, whether it is PSU banks or some of the other PSUs, whether there is either a divestment story or a business turnaround like what we have seen in case of Coal India and some of the commodity plays, people are looking at the PSUs with a fresh perspective.

The Railways being a big capex story, some of these companies which are the beneficiary of higher capex could get benefited. We have not really looked at specific names and I would not be able to put out any recommendation there.

The hospital space is buzzing. We saw KKR exiting Max Healthcare. There is a Global health IPO listing next week. Then there is buzz around Manipal Healthcare, IHH is in conversation with Sebi when it comes to the open offer for Fortis. How is the hospital pack looking for you and what would be your pecking order?
The hospital space is looking extremely good and the last whole year, this was one space where we had seen a phenomenal growth in terms of revenue and profitability and some of these companies also have built some interesting subsidiaries be it on diagnostics side or on the side of the distribution of medicines and the entire chain around it like what Apollo Hospital has built.

So, on a higher base, there is a sense that they can deliver incremental growth over the next two years. Our view is that 18-20% growth over there is very much possible for the kind of additional capex that some of these companies have undertaken. We see a good momentum and Apollo remains our top pick. Apart from Apollo, Max Healthcare could be another company where there can be a good interesting opportunity for investors for a 15% to 20% kind of an uptick.

What is the outlook on Cummins India? After having achieved the highest quarterly revenue and profit across their geographies, export growth has been strong but the management has refrained from giving any sort of a guidance due to the challenging environment.
Our take is that the capex as a theme is in vogue and there is definitely a liking for some of the companies where the overall performance is good and where the management is guiding for a better growth ahead. From that perspective, Cummins could be one stock to look at though the company has refrained from giving any strong guidance. We think that people would like to get into something like this.

Apart from Cummins, we also think that in companies like ABB, Siemens, Larsen, at the investor level, the participation is not enough and these companies have just started a big up move and the cycle is turning around. We see a lot of scope for the capex theme to play out.

What about Piramal Pharma? The company delivered about Rs 37 crore losses in the quarter gone but margins have expanded. Have you tracked the internals? What is the outlook?
Post demerger, there was initially some sort of a de-rating or a selloff in the stock but this is something where we think that there is a case for a multiple triggers; be it in terms of much better revenue profile with margin expansion and the fact that compared to some of the listed CDMO plays both globally and India, this is till quoting at about 12-15% kind of a discount. We do not have a buy rating on this one but we do like the space and that can provide some short term opportunities for traders.

Do you think that some of the PSU banks have still a long way to go because this is a sector where institutional interest and foreign interest is low and by design or by force, institutional investors will be forced to buy them?
On the one hand we are seeing a big turnaround in their core operating parameters and on the other hand, the valuations remain incrementally attractive along with subsidiaries. One of these companies is quoting at let us say 1.4 times price to book where we are looking at a 32% kind of earnings growth for the next two years.

Parameters like credit growth, the overall CASA ratio and the NII part continues to remain good and the sense one is getting is if we are going to see a good capex-led revival in the economy, then some of these banks are in a much better position to participate or benefit from it because of their overall franchise and the growth profile that one is looking at coupled with valuations.

It remains one of the top performing names for us and both State Bank of India, BoB and some of the smaller banks, something like a Union Bank also we think can do very well from a one to two year kind of a perspective.