4 must-buy stock ideas from Amit Khurana of Dolat Capital

Two high conviction themes that Amit Khurana, Director, Research, Dolat Capital, suggests to ET Now are corporate banks and consumer 65587127 65576375 65572145 durables. Khurana is bullish on Balkrishna, ACC, ITC and Tech Mahindra.Edited excerpts: When it comes to pharma we are programmed to think of generics and within generics, we tend to connect the dots with US markets. But at a time when there is a raging bull run in consumption dominated themes, does it make sense to align with MNC pharma companies? For example, a Pfizer has certain advantage in certain drug categories, Abbot has a huge advantage in thyroid medicine, Glaxo has a big advantage in skincare and other products.No doubt, these companies have their own product advantages and own niche areas but I am not very confident of saying that they would be the preferred business models that I would like to suggest versus some of the other Indian players which have reasonably good distribution.If the choice is between Indian pharma companies catering to domestic markets and the MNC pharma companies, it has got to be a basket approach depending upon the strength of the business model. Some of the MNC pharma companies are not cheap, in spite of their underperformance over the last few years. Even at lower levels, they were not cheap models and they have their own challenges. Therefore one has got to be very stock specific when one looks at MNC pharma as a space. The takeaway is that the growth of the domestic market looks better from here onwards. For the pharma companies, the volume trajectory should be relatively better off and hopefully the pricing pressure should not be as much as we have seen because of the regulation or other factors. To that extent, the market is probably readjusting its valuations and outlook and we are seeing this kind of an uptick of late.How are you positioning yourself on IT stocks right now, especially the largecaps?We have been fairly positive on IT for the last few months. The trajectory is supportive both on the currency front as well as the business environment front. While we remain positive on largecap IT, we feel HCL Technologies and Tech Mahindra will be the two stocks which would post relatively better returns and better earnings trajectory from here onwards. This is not to say that we are negative about others but a fair amount of optimism and performance which is likely to play out is captured in valuations and therefore our preferred picks in largecap IT space are HCL Technologies and Tech Mahindra. We feel that their business trajectory will be relatively better off. For HCL in particular, the concerns around the core business which have played out over the last few quarters will dissipate from here onwards and the trajectory for earnings should be relatively better. Similarly, for Tech Mahindra, concerns about the operating margin being under pressure, has played out reasonably well and from here onwards, the trajectory should be far better. Both these stocks are at reasonable discounts to the leaders and we see a significant headroom for these to rerate over next three to four quarters.Give me a list of your top two or three ideas that you would like your clients to buy?Balkrishna is one of our top picks for the next one year. The capacity expansion will play out reasonably well. Their distribution network is expanding into the key markets of the US and Europe. That is one name which I wanted to highlight and we are extremely bullish about that going forward. Of course, being a net exporter, the rupee depreciation going forward definitely is a very big tailwind for this company.The other thing I wanted to highlight is that we have gone in favour of pan India mode and north and other region focussed companies versus south cement companies. Over the next three to four quarters, the trajectory for companies outside of south looks far better considering the pricing environment will be a little more supportive and therefore we are recommending ACC as one of the new additions to our preferred picks list. The other one which I already mentioned was on IT services where we have increased our weightage of Tech Mahindra as the new entrant. Most of the other names have been similar in the latest note that we have put out. We still like ITC as a real value play and hopefully if the cess rate hike does not play out as aggressive as the market is anticipating, we believe there is a strong rerating potential from here onwards or ITC for the next one year. We like the radio space still, even though it has been an underperformer for the last few quarters. We still believe that they are now at an inflection point and the next three to four quarters will be significantly better as a model to play out for.Stepping into trade this morning, what are your top two, three high conviction ideas at this juncture.From a technical perspective, we still believe there is a lot of strength in some of the corporate banks, in particular ICICI Bank and Axis Bank. This is a high conviction call that we are putting from the derivatives desk last few days and that continues to be the stance for the next series as well. The other new theme which I may want to highlight is that we are now saying that versus consumer staples, it is better to play the consumer durables cycle in the consumption theme for India for the next couple of years. The reason is the GST duty rate cuts can be expected to spur domestic consumption growth for the durables due to a very meaningful 7-8% cut, the push towards Make in India campaign and as well as import duty hikes which will encourage domestic production.Very importantly, we see a lot of Indian brands are now expanding their distribution reach. In our channel checks, we have seriously seen some of the tier-2, tier-3 cities being now expanded into by the Indian brands versus some of the foreign brands that we have seen in the last few years. We believe that some of the Indian brands will emerge as very strong contenders to take market share on this consumption theme over the next few years. That is the other one which I would like to highlight.If I put a gun to your head and I insist on an idea from consumer staples, which is one consumer staple stock you would like to buy?ITC is a name that I have already mentioned. We are quite positive on that, given the valuation discount that it quotes at and the volume growth from here onwards for the core cigarette business should be relatively better off. If the cess duty hike does not come out as aggressively as the market is expecting then I think that will be a strong rerating candidate because most of the other names are now very expensive. Therefore, we are still recommending ITC from the consumer staple theme and saying that from consumer staples, it is better to look at consumer durables with a medium-term perspective. That is the stance we are making.

from The Economic Times https://ift.tt/2wiJ3b9