Expect double digit return for Nifty in next 12-18 months: Pankaj Pandey

“Within sugar, Dalmia Bharat should benefit given the fact that it will be one of the biggest exporters. That is one stock where we see an upside of more than 50%. Dwarikesh Sugar is another stock where we see an upside of more than 40% from current prices,” says Pankaj Pandey, Head Research, ICICIdirect.com.

What is your take on new platform companies like Zomato, Paytm. Do these become a buy at some price point or would they be a complete avoid?
As of now it is a complete avoid. Even with the correction, they are still sort of expensive and we are still not very sure about the path to profitability. We really do not have that courage to look for the next four, five years to see what kind of numbers they pan out and on the basis of that recommend a buy. This space is quite dynamic. We are still watching for models where the path to profitability is clear. That is the first thing we will watch and then the valuation will come.

Generally any stock which is trading in excess of 15-20 times sales, not making any profit, is a bit of a challenge. The most expensive FMCG companies might be trading at 10 times sales but they make a decent amount of profit. But these new age companies are trading at 40 multiples. I think money is largely safe in a FMCG kind of a counter. Look at say Dabur or Tata Consumer rather than some of these names. They are still an avoid according to us.

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For the people who are holding these stocks does it make sense to book out their losses now and move to FMCG names?
In these stocks, the allocation cannot be high. So if from a portfolio perspective it is high, then it needs to be pruned down but what you can bet on is that some of these companies might turn profitable over a period of time and might generate exceptional returns which is what happened with some of the stocks globally.

But if you are holding a significant portion, then it makes sense to prune down the position. You cannot have a major position in these stocks and expect them to outperform the market; that is very risky.

Do you think that in next 12 to 18 months, a double digit return for Nifty is coming?
Absolutely. Corporate earnings will show 13-14% kind of growth if not better. So, earnings are definitely on the positive side. Domestically we are doing absolutely fine. It is just that the global sentiments are getting sold domestically and which is why we see gloom in the markets. Our view is that it cannot happen that the crude remains at elevated levels and the world also grows.

As and when the recession or data which is pointing towards recession in the key economy like Europe or US comes out, there will be pressure on the oil prices and that will be very good news for us because that will reduce the FII selling pressure, the inflationary pressure and can lead to double digit returns in the Nifty. Even our Nifty target is pointing towards that. We have a target of about 18,700 on the Nifty for the next one year.

From the broader markets, suddenly the specialty chemical stocks are doing well again; sugar stocks have been buzzing and textile stocks too have been seeing a good day given that cotton prices have come off almost 30%. Is there any name that you like from these sectors?
Within sugar, Dalmia Bharat should benefit given the fact that it will be one of the biggest exporters. That is one stock where we see an upside of more than 50%. Dwarikesh Sugar is another stock where we see an upside of more than 40% from current prices.

On the cotton side, while the global prices have corrected, the domestic prices have corrected only 15-16 odd percent and our sense is that it will correct further and that should help companies like KPR Mills and Gokaldas Exports. These companies have taken a knock recently largely because there was an expectation that probably the other competing countries might do well relative to them. That will address some of these concerns for these companies.

Overall, even the infra as a space is looking attractive to us because our sense is that within road construction, we will see companies like KNR which has not really done much, doing well. Road construction and water as a segment should see a pickup in capex and companies like KNR will benefit from that aspect.