Due to both negative market conditions and adverse company specific newsflow, Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities tells CNBC-TV18 that investors should stay away from that particular stock. “ Tata Steel and SAIL are better options that will score ahead Sesa Goa on any given day,” he said.
However, for those investors who are already long on this name, Thunuguntla says that they should hold on because Sesa Goa looks to be bottoming out.
Thunuguntla is also bearish on auto companies, mainly Hero MotoCorp and Bajaj Auto . “In the next wave of selling, FMCG and maybe even automobiles will become leaders in terms of the fall,” he said.
However, Coal India is one stock he is bullish on. “With a stop loss of Rs 280-290, you can trade this stock,” he said.
Below is an edited transcript of his interview with Reema Tendulkar and Sonia Shenoy. Also watch the accompanying videos.
Q: Do you see any upside in Sesa Goa and would you recommend an investor to average?
A: This has been a double whammy for investors. The market condition is already not very exciting, and above that the company specific bad news is adding up to the overall 50% correction or so. If an investor is interested in metals, then Tata Steel and SAIL are better options that will score ahead Sesa Goa on any given day.
I don’t see any reason why one should average at these levels. However, selling now would probably mean that the investor is selling close to the bottom. So an investor can stay invested and exit on one of the bounces. But if the investor is keen on metals, then Tata Steel and SAIL are the better options.
Q: What is the call on Bajaj Auto post the sales numbers that we saw yesterday? There is some talk about two wheelers sitting on premium valuations of about 11-12 times forward which may need to see a bit of a scale down; do you concur?
A: It seems that the next wave of selling in the Nifty will come in from this automobile space. I think in the next wave of selling, FMCG and maybe even automobiles, who have escaped the last time, may become leaders in terms of the fall. That is why there is no reason to hold either Bajaj Auto or Hero at this point.
I think the stock should be available at much lower levels and today’s bounce should also fizzle out sooner than later. I think it’s better to exit Bajaj Auto.
Q: What is the kind of upside you see in Coal India?
A: If you see calendar year 2010-2011, then Coal India was one IPO which bought a smile on the face. I think that momentum can continue. Rs 280-290 is a very good support and with that view in mind, you can trade it. When it comes below Rs 300, around Rs 280-290, you can add more.
This share might not crash as other shares because with a market cap of Rs 190 crore, the company has Rs 50 crore cash, so that is about 25% of cash balance sheet. So there is comfort with that view in mind. I think it will not go below Rs 280-290 and you can trade with this level in mind.
Q: With a one-two year horizon, what is the call on ICICI Bank ?
A: In one to two years, the investor should be making money. But having said that, if the Nifty sell off continues, I think probably the bottom is still sometime to go. So ICICI Bank, being a Nifty component, should see some sell off. In that sense, probably lower levels will be reached.
If an investor is betting on banking, then with a slightly contrarian view, there is some value in the midcap PSU banks which the market is completely avoiding because of NPA fears and slowdown in loan book growth fears. Some midcap PSU banks are trading at 2-3 PE multiple like Bank of Baroda, Oriental Bank of Commerce and UCO Bank which are available at very reasonable valuations of 0.4 price to book.
I am indicating it is a contrarian bet because there is always a fear of NPAs, but if you are looking for quality in banking, then ICICI Bank will score ahead any given day. But if the Nifty sell off continues, you will see much lower levels. As the investor is a medium-term investor, in one to two years he should be making money.
Q: What about Yes Bank and IndusInd Bank ?
A: Today if I have to enter the banking space, I am finding midcap PSU banks a lot more meaningful. The stock correction has been quite steep and all those banks are 80-90% owned by government, so there is no question of these companies going under. Also, there is always a chance of recapitalisation.
I know I am taking a risk of NPAs, but at the current valuations, I am finding it a lot more comfort. It’s a question if you want high quality HDFC Bank at 20 PE multiple or medium quality at 2-3 PE multiple. So it’s a perceptional game. May not be Yes Bank at this point, but either take a quality bet at high valuation or medium quality at lower valuations.
Q: Do you see lower levels on ICICI Bank that investors can buy into?
A: If the Nifty falls around 5-6% from here, then one can average ICICI Bank at Rs 650 levels and one can enter at that level as well.
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