Let us get in a sense as to how you are looking at the entire IT space. We were discussing that quite extensively owing to what the expectation is that we could see some sort of an uptick. For instance, we had Birlasoft which was on the brokerage radar today as a strong opportunity to buy on declines. What is your outlook on IT as a basket?
Hemang Jani: I think part of the weakness that we had seen here in India also had to do with the way the Nasdaq and some of the top IT companies reacted in the past few days. Numbers were by and large okay. Some of the midcap companies delivered much better numbers than what the street was expecting. But my belief is that some of the domestic-oriented IT companies are better placed, be it platform companies like Zomato or you have something like Naukri, which has its own India-focused job portal where you are seeing incremental positive data points.
Also, some of the midcap IT companies where the numbers have been good, something like KPIT, FSL also. So, some of these companies are in a better position and because of the volatility that we have seen in the past few days, some of these stocks are down about 5% to 10%, so they may provide a good entry point.
Just taking a leaf from what my colleague Sharad as well was highlighting, the impact of the Bangladesh unrest on some of the Indian companies and largely it is the textile plays which would get impacted. It is very soon to try and assess the damage. But do you think, I mean, a fall in a Trent, in a Welspun, etc, should be looked at and bought into perhaps if that be the case?
Hemang Jani: So, there are two ways to look at this whole scenario. One is that because of the disruption there in Bangladesh, the companies which have a meaningful exposure already because of the way the entire thing is panning out, there might be negative reaction. But it will all depend upon how long the unrest continues there. So, if there is a meaningful correction in names like VIP or Marico where there is a strong linkage in terms of their overall business, I think we should surely look at some of these companies in terms of buying into it if there is a negative reaction. Secondly, when you look at companies like Trent or something like a textile theme where because of the disruption if you have any meaningful benefit to some of the Indian textile companies, I think Vardhman, KPR Mills, Welspun, these are some of the companies that may stand to benefit, early days because we do not know how long this will continue and whether there is going to be a real benefit, but at least from a opportunity point of view, some of these companies could do well at least in the short run.
Since you did mention Marico, I am curious to understand, given that even yesterday in the carnage, FMCG was the only hiding space, other than Marico any other FMCG names that you are liking? And more importantly, are these long-term bets now after the Q1 commentary that we have seen from the FMCG majors talking about a sustained rural recovery or is it just a tactical play you think?
Hemang Jani: Very interesting question, as a sector it has started doing well, maybe as a part of the rotation and more so in the current global backdrop where you are seeing increased volatility, people tend to move into the defensive themes.
From that, surely it makes sense. Also, the fact that you have better monsoon and given the positioning of the government where they are trying to showcase that they will be more focused on to the rural side and try to have some sort of a political advantage, that also fits into this theme.
Companies like maybe Marico; Dabur reported good set of numbers; Britannia, the volume growth surely surprised; HUL also has some more room on the upside. So, not necessarily from a 12-month perspective, but at least the near-term, let us say next two- or three-months’ perspective I think some of these companies could do well.
Just wanted to get in your take on Motherson Wiring of course and then other auto ancillary companies in this environment.
Hemang Jani: So, Motherson Wiring, the numbers were slightly below estimates mainly because of the startup cost of two plants and otherwise overall the company has done pretty well and we expect some sort of a revival in the EBITDA margin for Motherson Wire and surely we have a target price of about Rs 80.
So, around 65 odd levels should be a good entry point. About the global auto ancillary companies, they have gone through a sharp correction yesterday primarily because of the numbers which were out in US in terms of the truck sales.
So, for the timing given the run-up that we have had in names like Motherson and Bharat Forge, you might see a bit of a underperformance, but at some point maybe another 10-15% kind of a cut Motherson would provide a good entry point.
What happened yesterday and what is happening today? Imagine if somebody went on a one-day holiday, nothing has changed. Japan is up.
Hemang Jani: I wish we could take holidays with such a great timing. Having said that, we had enjoyed this rally for an extended period of time and we did not have any meaningful correction if you see last almost about 12 to 15 months. We did have some volatility because of the events like the election result outcome or budget day, but nothing that would test your patience, your risk management, etc.
So, first time we have seen that happen and this is backed by very high IVs that we had witnessed maybe at the time of COVID.
So, in a way it is good because given the high valuations in the market, particularly the broader market, we needed some sort of a test check or a stress test as we call it.
But I think things are now stabilising. Hopefully, over the next few days if we see more stability in the global markets, IVs cool off and we have a very strong case for a rate cut, that would surely give a lot of opportunities for those who are on the sidelines.
Have I done a decent job of explaining it?
Hemang Jani: Yes, as always you make it very simple, very interesting and I think unlike COVID or some sort of unknown kind of event which really had a major effect in terms of the IVs and the volatility and more importantly the uncertainty around it.
This time around, this is not something like the market was not expecting at all. We do get these kind of events and that leads to a bit of volatility and because of the higher leverage in the system, sometimes the impact is much higher.
But fortunately, in our own markets, the leverage is very much under control. If you look at the F&O positions, I do not think the leverage is that high, at least on a positional basis.
And also a lot of money is on the sidelines because the market did not have any meaningful correction.
So, we should see stability returning back very soon for our markets and important to note that our markets have done very well in the past, let us say, a few days while there was volatility in the global markets, our currency has held out extremely well. So, those are the good signs for our markets.
What is your outlook on the quarterly numbers from an ONGC?
Hemang Jani: The ONGC numbers were okay. The realisations were not that good. The volume growth was about 3.5% or so. And I think in the current scenario with the crude prices going down, there is a slightly larger interest towards the oil marketing companies, we had seen a bit of a rebound there.
But given the fact that you will see a bit of a softness in the crude oil price and traditionally some of the numbers that OMCs delivered were good, so I think I would be more inclined towards OMCs.
ONGC, we do like the valuations and the overall theme there, but if you have a let us about 5-7% kind of a correction, that would be a good entry point.
