GO India Advisors: Safeguard your portfolio by betting in these 3 spaces: Rakesh Arora, Go India Advisors

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Infra, utilities, small cap banks and NBFCs looks to be a good place to invest in case market continues to go up from here on, Rakesh Arora, MD, GO India

Advisors, tells ET Now.

Edited excerpts:

Why is there so much churn in the market and a mad rush to rotate into megacaps?


Indian market has been a two paced market meaning for the major part of this year, only 12 stocks have been really performing. These are up around 25%. The rest of the market is down between 10% and 15%. So, it was not really reflective of the broad breadth of the market which we see in indices and that correction is revising a little bit.

Do you think that the market can sustain at these levels given that earnings push is now coming through but rates are going up as well?


The earning season has been reasonably good and that really supports the market in the near term. But there are lot of headwinds, mostly global. Whether this trade war will spill into a currency war and what impact that will have on India is yet to be seen. Plus, the repercussions of Iran sanctions, what impact that will have on oil prices have to be seen. There are lots of ifs and buts in this market and that will limit any major upside from here on though earnings are supporting a little bit uptick in the market move.

As an investor you are in a quandary then. What is it that you do? Do you stick with those high value expensive names because that is where growth is or do you now play on the bottom up story, hoping that at some point those mid or smallcaps would make a comeback?


I do not think those expensive safe stocks are really safe. If things turn worse in the global economy, they will also correct quite meaningfully from there. I would rather look at companies which are sustaining earnings and are at reasonable valuations.

Some of the picks that I would try to look at would be in infra space where the order inflows continue to be extremely strong and in the run-up to the elections, the government is also pushing these companies to complete projects. So, execution and revenue growth would be very high for infra companies. One can look at the EPC companies in the infra space. They should do really well this year.

One can also look at utility companies because their earnings are not really impacted too much and Indian economy is starting to pick up. So utility companies will show growth and most of these stocks have also corrected quite a bit.

The third probably is NBFCs and smaller private banks. These stocks have corrected because interest rates were going up and they are seeing NIM compression but probably it is time, the valuations are looking reasonable on most of the NBFCs and small private banks. They will continue to gain market share from PSU banks and to that extent they will grow much faster than the system and probably look attractive at levels. So infra, utilities, small cap banks and NBFCs looks to be a good place to invest in case market continues to go up from here on.

What about the consumer stories? Consumption despite valuations is pushing past conviction. Do you still buy consumption at this price?


The largecap consumer stocks are all trading at 50 PE or plus. It is very difficult to buy into those companies at that high valuation. Probably in the small to midcap space, there is still some value, meaning some of the stocks are trading at 25-30 PE that is still reasonable. I would say and probably investors can look at some of those midcap consumer names but I do not think largecaps have too much steam left and nothing is truly defensive when things go wrong.

What about banks because there seems to be quite a lot of enthusiasm. It seems like it is all washed out for ICICI Bank after its earnings. One can see a meaningful rebound in the stock price as well. In fact, it had been one of the largest contributors to the Sensex move. You got a good move after BOB earnings. Do you think corporate banks is the story to bet on now if you want that beta in your stock portfolio?


Yes corporate banks do look attractive. The NPA issue seems to be behind us but one needs to be little bit cautious looking at those smaller PSU banks. You can play the theme through the top three corporate banks but down the chain, there would be still more pain because the recent government notification allowing lowering of the threshold for banks to deal with smaller loans. Now you need only 66% approval of the consortium to push through the resolution plan. A lot of smaller loans will come under this NPA and there would be more provisioning and probably credit costs. One should focus on only on the top two-three corporate banks and avoid the long list of PSUs. There might be a still residual pain left in the system.

What else would you avoid in this market, we already know what is happening with the aviation and Jet Airways is going through a bit of rough patch. Is that an opportunity or is that a complete avoid?


It is difficult to say anything on stock specific company. But generally, if oil prices you are not sure, airlines do not really make sense immediately. One needs to get a handle on the oil prices and given the Iran sanctions, it is difficult to take a call. I would say it is best avoided at this juncture till we get more clarity.

Give us a contrarian view on this market. Any segment where there is no conviction right now but you think things could turnaround very quickly?


Pharma could be a contrarian bet. We have seen that the resolution of lot of those FDA problems the companies face in India are getting behind us. The trade war or the pricing war which you are seeing in US is also starting to abate. Pharma companies could give strong results in a year or two. I feel pharma is in the same place metal companies were two years back. They all went up two-three times. So, pharma would be a contrarian bet in this market.





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