Hemang Jani on bets for Summer of 2023, algo trading & more

“Summer provides a 5-10% kind of opportunity for names like Voltas and Blue Star and remember that Voltas actually did a little better in the last few days purely because of that. This could be just a 5-10% kind of a pop or a very small trading opportunity. So, one is really not looking at a very sustainable rally in these names and one should stick to 5-10% move. If I really want to participate in the summer theme, definitely Varun Beverages would be on the top of mind because that is more like a structural story,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL

We knew that it is going to be a hard summer. Everybody knew 10 days ago that the El Nino effect was at play. Has something new and different come from IMD's forecast yesterday which is new for the markets?
It is a little early in terms of predicting the monsoon. People do have some concerns about the El Nino effect playing out and after four consecutive good monsoons, maybe there could be a risk of below average monsoon; but it is still a little early in terms of the market because unless we get into April or May end, it would be very difficult to gauge and the market will not start you know looking at that.

At the moment, what the market is concerned about is the kind of slowdown that we are seeing in the overall consumption space and the global backdrop not being so good. That is affecting the market sentiment and we have seen that both US markets as well as Indian markets are grappling with some sort of a slowdown and a very boring kind of grinding movement is happening. We have to wait and see how things shape up and look out for good opportunities because of the corrections that we are seeing.

How have you read into the kind of commentary that has come in from the Federal Bank analyst meet, speaking of the entire banking space as well? What is your outlook now as we are seeing the culmination of Axis’ acquisition of Citibank and what could it mean for the consumer business?
There were positive takeaways from the Federal Bank analyst meet. The ROA guidance and overall strategy that the company is trying to put in place is positive and if you look at last two years, there is a marked improvement in overall data in terms of the loan growth, the NIMs and the way the company is actually foraying into the digital footprint that should definitely help. We like the bank and we feel that in the next two years, the company should deliver 16% growth and we have a price target of Rs 170 for Federal Bank.

I go back to that summer of 2023 trade. Would you buy an air conditioner? Would you buy a beverage company? Would you buy a fan company or would you buy an electricity company because if there is more heat, that means there is more electricity demand. So, what is your trade for summer of 2023?
Summer provides a 5-10% kind of opportunity for names like Voltas and Blue Star and remember that Voltas actually did a little better in the last few days purely because of that. But what we must understand is that this could be just a 5-10% kind of a pop or a very small trading opportunity. But looking at the kind of slowdown that we are witnessing across the consumption space, it is not looking that great.

So, one is really not looking at a very sustainable rally in these names and one should stick to 5-10% move. Varun Beverages is something that we have been liking a lot and the company has delivered a good set of numbers. If I really want to participate in the summer theme, definitely Varun Beverages would be on the top of mind because that is more like a structural story, more products, more geographical presence, the stock too after the MSCI part has corrected a little. So, it does provide a much better risk reward at this point.

What is your outlook on Delhivery with respect to the kind of news flow that we have seen with SoftBank offloading stake, the kind of commentary that we have got from Zomato where they are very confident of growing the business as well as achieving the $100 billion revenue down the line? What's your take?
The management commentary over the last few months has definitely improved but frankly speaking, these companies have gone through much de-rating in the market cap. Now whatever the management says in terms of the numbers for next five to 10 years, people will take it with a pinch of salt. One will have to go with very realistic assumptions and it must be more based on the data points rather than just wishful thinking.

The Delhivery market cap, even after seeing such a big correction is about Rs 25,000 crore and the company does a quarterly sales of just 1,700 crore with no profit whatsoever. Does one really believe that there is going to be a significant turnaround? I am not too sure. I think some of the new-age tech companies like Paytm or Nykaa or Policy Bazaar, because of the slightly incremental management commentary may provide a 5, 10, 15% kind of a trading opportunity. I do not think that the market is looking at a very sustainable or major re-dating for these companies, at least from 6-12 months’ perspective.

What is your outlook on the auto space, given that we will be watching out closely for the Feb auto sales numbers? Could we see two-wheelers come back on track? We have also got CLSA's note coming out on M&M. They have upgraded the stock to buy citing the strong momentum in the farm as well as the auto business. Would it be one of the favourites?
Auto as a sector is holding out pretty well but for two-wheelers, we had this recent data point from Bajaj Auto where due to the concerns on the export side, they are going to cut down on the production. It is not boding well. Otherwise also, two-wheelers as a space has not done so well. So we are not ready too positive there.

But names like Maruti, Ashok, Leyland, Eicher are relatively better placed. We think that this correction provides a good opportunity. At the same time, we are seeing a cool-off in the metal prices, aluminium and copper. So, maybe to some extent in some of their parts, there could be some improvement because of that also. Overall, we are quite positive on the auto space.

Where are you on startups or old economy stocks?
If you look at the trends, the bond-based and the algo-based traders are the ones who are making a big difference to the actual performance and while the markets have been sluggish and most of the fund managers and investors are struggling to generate any kind of returns, forget about alpha, some of these smart guys are actually generating exceptionally good returns in the market.

I think the market is moving towards technology-based trading and the kind of model or the logic framework that given the opportunity which is there in the market – both options as well as the normal market – is where I am really inclined. There is going to be a big headway because of the new norms that Sebi is going to come out with and the fact that they can have good returns irrespective of the market.