New set of stocks led market rally in last 20 days: Kunj Bansal

The surprise leaders or gainers which have taken the market up in last 20 days are metal stocks and some of the pharma and newer banking stocks, says Kunj Bansal, Partner, MD & CIO, Sarthi Group. Excerpts from an interview with ETNOW. Let us talk about OMCs because IOC is in focus today. What is the overall trend, keeping aside specific factors for BPCL?It has always been a challenge to monitor the OMC stocks, specifically the oil refining and marketing stocks on a quarterly basis. As an analyst and as a fund manager, expectations on refining margins, profitability, government subsidy receipt all are built in, but the numbers sometimes tend to digress quite significantly from the expectation, especially on a quarterly basis. So, it is very difficult to take a call on a quarterly basis. As I said, the medium term performance of all these public sector companies will depend on the government’s privatisation move. The outlook for auto is quite dismal but Eicher, Bajaj and even Maruti stocks are up between 15-20% and 40% from the recent lows. What are the markets telling you?After the corporate tax cut announcement by the government in October, the market went down from 11,500 to 11,100 and then from here, almost one way they have risen to close to 11900 -- a 7-8% revival. Now this particular run of the market has been led by a completely new set of stocks. It is not the standard stocks which we used to have earlier -- HDFC, HDFC Bank, Bajaj Finance and a few others. In fact, the surprise leaders or gainers which have taken the market in the last 7-8% rally in 20 days are metal stocks and surprisingly, some of the pharma and the newer banking stocks. Quite a big gainer has been Yes Bank and ICICI Bank and also SBI a little bit. Some of the pharma and FMCG names and of course auto have done well. Eicher has moved up 20% or so in the last 20 day and Maruti has gone up 10-12%. Tata Motors again was another surprise with 40-50% return in the last 20-25 days. The stock market movement tells us that smart money is looking at a recovery in the auto sector. Now, it is possible that it is a false signal and the stocks could come down again, but as of now, it is showing the recovery signs not only in OEMs but even auto ancillaries. There have been news reports of sales picking up in three-four days closer to the Diwali, although on a YoY basis, they could possibly continue to remain lower. I think all the negative news is in the price, is in the valuation. The EV threat which was looming very large, seems to have subsided for now and as a result, contra investors for a medium term wanting to take a position have got interested. Somebody who has been looking for valuation can take a yes call in the short term because of the rise that we have seen. For traders, it could be a negative surprise also. Do you own any insurance stock? If yes, which one?Yes, we do own HDFC Life in some of our client portfolios. I personally own some of the life as well as general insurance companies from their IPOs about two to three years back. If you want to know the reason and the question on the valuation, then I can talk about that also. Now that you have kept these stocks for two years, they are up 50% to 100%!Yes. There has been a pattern, especially the life insurance companies after the IPOs initially did not perform for one to one-and-a-half-year period. General insurance companies continue to perform. Last 6-9 months, nearly the whole sector has performed has got rerated. Thankfully, the sector has supported it by delivering the performance. If we look at the growth number of the insurance companies, both life as well as general insurance have continued to report growth rates. In terms of value of new business, in terms of APE, the growth is in the range of 20 to 40%. We still say that India is under penetrated in insurance. Despite LIC, GIC having been here for the last 50-60 years, the Indian market remained largely uncovered. That is where the private insurance companies have really been able to make a dent. They have been able to cover the market, increase the coverage and that is how they have been able to achieve these kinds of growth rates with profitability. The important part is that it is not resulting in too much strain or drain on their financial if we look at a reasonably decent movement towards the improved financials which have already come and which will come over the years. Also let us keep in mind that this is a relatively new sector in the market for the last two-and-a-half to three years. There were no listed stocks available in the insurance sector and any new sector always has a novelty value and therefore attracts extra buying because the institutional as well as individual investors are yet to come to own the sector. Now that government ownership in IOC or NTPC has come below 55%, do you think there is scope for these stocks to rally?Unfortunately, no. I will of course, divulge the details and you can possibly call my negative bias towards public sector stocks also, but let me try to justify it with some numbers. Leave aside the last one and a half or two years, the period in which the government has sold stake in public sector stocks through the CPSE ETFs and some other measures. Even if you put on a screen a five-year or a 10-year or since listing, NTPC chart for a long-term investor who bought it in the IPO till date, has not got any return in this stock except for the dividends which have come. That makes me question what is happening here and it is not that over the last so many years, the company has not grown in terms of top line, bottom line, profitability, cash generation and so many other things. It comes back to the fact that probably the ownership is something that is causing the problem. While the government ownership has comes down to below 55%, will the stock start getting rerated? Probably not. In my view they will get rerated when the management gets transferred, when the ownership gets transferred and free hand is given. There are only two examples of public sector stocks getting completely privatised. One was IPCL which was sold off to Reliance and subsequently merged into it and VSNL which was sold off to Tata with complete management control. In the case of VSNL, the land issues are lingering till today. Other than these examples, there has has always been stake sale and the ownership as well as management control and the authority to appoint senior management have continued to remain with the government. Until that changes. I do not think stake being brought down by the government is going to help. What is going to help in terms of rerating is management control being shifted to another party. That may not be panacea and there have been multiple cases of failures and the private sector has not come out with flying colours in all the cases. That is where I have slight discomfort with the public sector investing for the medium and long term investors. Some of these stocks are great dividend yield stories and quite a lot of them are very good trading bets, excellent for the traders who understand trading. Let us touch upon BHEL, given the kind of move we saw in that counter yesterday. What is the scope in some of these PSU names?Let us also keep in mind that this kind of sharp up move also came on the back of sharp down move as recently as a week to ten days ago. For the last three-four-five years, the stock has been falling continuously. In fact, if we look at its last five year’s performance, the stock is probably down some 80 odd per cent. So to that extent, for any long-term investor, it has not added anything. If some short term traders could take a position at those lower levels, they might have benefited but that happens very rarely. Stocks like these have to be seen in two perspectives – one on the basis of the financials and the fundamentals of the company; and two, on the basis of news flow and expected development. As you rightly said, there is a lot of talk about divestment. The public sector stocks are going up because this time market is hoping for divestment leading to privatisation, specifically with at least one or two few stocks. Government stake being sold from one public sector company to the other like in case of HPCL and ONG has happened, does not add anything. It further leads to deterioration and working of both the public sector companies. If the government is really able to take the idea of privatisation forward, then we will see the re-rating of the public sector space but within that again, after an initial euphoria gets over, focus will be only on those 1-3 specific names where the actual privatisation takes place. As of now, I do not think financials or fundamentals or results are something which are playing on these stocks. It is the development of privatisation that has to be watched.

from Economic Times https://ift.tt/2qS5jIS