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On Aviation Stocks
There has been a relative slowdown of the economy but a lot of it is getting addressed. The cost of money is definitely headed lower which means ease in travel and very lucrative rates maybe a thing of the past. Rates may start to head up. We have a buy on both the stocks on declines. There is regular bouts of profit booking which comes when IndiGo was Rs 1m750 and SpiceJet was Rs 145 . But again, these are the two listed companies. Personally, I prefer to travel by Vistara.
But on declines, this is a very consumer centric industry where 2020 should bode extremely well, given that we are very optimistic on the return of the consumer, the economy doing well and aviation as a conduit for that.
On Telecom
Our clients have been laughing their way to the bank. We have been long on Bharti and Reliance as a disclosure and we are riding it. We think there is going to be a short term bout of profit booking which may last for two-three days but this is one sector which is going to bely most expectations. Most of the underpinnings are over. ARPUs are going to rise and we think there could be a fair package for both Vodafone and Bharti from the government.
We will work on that but we definitely think the government is going to give some relief. On the consumption side, you can see that we have been saying that ARPUs may have bottomed out and we thought that data is definitely going to get more expensive. A disclosure, Bharti, Reliance are two of our top picks. They continue to be in our portfolio and this week has been exceptionally strong for all investors who have held those shares on our account.
We are very positive on Sun, Lupin, Dr Reddy’s, Cipla and Glenmark. You can add a Divy’s there, but if you are a strategic investor, then SBI Pharma Fund and the Nippon Pharma Fund should be very, very good funds to do a SIP at least for the next six months.-Sanjiv Bhasin
On PSU Banks
The weaker or the most hated sectors — telecom and PSU banks are bouncing back. The Supreme Court judgement on Essar Steel is a path breaking decision and the SBI chairman, smaller banks have said that write backs will be a part of the course as most of the provisioning is done. So, I am extremely positive on PSU banks. There is a Rs 70,000 crore of recapitalisation, which means almost 5.5 lakh crore of book will grow in the next three years.
We think you cannot go wrong given that yields are softening. They are awash with cash and they are going to definitely start the lending cycle on the retail side. So SBI continues to be our top pick. Along with that, Bank of Baroda, Canara Bank and PNB can give you at least a 30% upside from present prices. 2020 may actually see PSU banks lead from the front
On Divestment
The divestment candidates like Concor, BPCL & SCI have moved up very smartly.We think this is going to be a path breaking reform by the government. Strategic selloff last happened in 1999 and after that there has been a total hiatus. The government has decided that they have no business to be in business and that is a very positive move.
BPCL, Concor and SCI should set the cat amongst the pigeons. We are extremely positive. I think the valuations they will get will also be fairly impressive, given that all three businesses are monopolies. We have to see in the next three months, how fast the divestment takes place. The finance minister has already indicated that they should be done with it before March and it should see re-rating of the entire PSU basket.
The government has the intension to bring down their holding to 26% in a lot of other companies like IOC and BHEL. These are all very good entry points because the unlocking of value will be huge as and when it takes place.
On Pharma Stocks
Pharma has been a very big underperformer. This is just about time where smart money is seeing rotation. By the way, pharma numbers, particularly the likes of Glenmark were very smart looking and now people have realised that pharma has consolidated enough and the worries of the FDA issues are now going to be on the backburner. Plus, generic pricing in the US may be back and they are spreading in geographies across the world. The local businesses for all of them have looked up so we are very positive on Sun, Lupin, Dr Reddy’s, Cipla and Glenmark. You can add a Divy’s there, but if you are a strategic investor, then SBI Pharma Fund and the Nippon Pharma Fund should be very, very good funds to do a SIP at least for the next six months. 2020 could see pharma hugely outperform as a sector.
On Trends in Consumption Space
There are three parts. Firstly, these stocks have been the prime of most of the mutual fund portfolios. Nestle, Lever, Colgate and Asian Paints have taken the cake, even though numbers were not that sparkling. But they have been very expensive stocks and have been getting more expensive. For us, the game changer is these two three events which the government has done — corporate tax cut, strategic disinvestment. The pass through effect of money where the mistrust is now getting allayed and you should see much easier pass through of money from banks as PSU banks start to lend very actively on all three — discretionary, staples and durables.
The broader basket will definitely outperform. We are not making a case for Nestle or Lever at these prices. We think in fact if the Nifty sustains over 12,000 and if we hit new highs which is just round the corner, then the broader market consumption should do extremely well. That means discretionaries like auto and select other FMCG stocks could be outperformers in 2020.
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