Neeraj Dewan’s 2 top buy ideas in this market

“In the largecap space, HDFC Bank is now trading at a very attractive valuation. It is close to about two times book one year forward. The second stock idea is Shriram Transport Finance because the numbers were pretty decent as far as AUM growth is concerned and collection efficiencies have improved,” says Neeraj Dewan, Director, Quantum Securities.

It is expiry day. Let’s see if a base case is made for the Nifty. What is your strategy for the day and is it a different strategy where you are going to run for cover post 2pm?
As far as expiry is concerned, we have seen a very bad expiry this month for the bulls. Any pullback has really been sold into. Today again would be interesting to see because I do not see too much of an upside in the near term. The best case not for today, but for the next few days would be that we hold on to the low that we have made recently. If we manage to do that, then slowly and steadily the market can find its feet again. I really do not track on a daily basis and so it will be difficult to say how the market will pan today after 2pm. We look a little more short to medium term and not on a daily basis.

What happened to Asian Paints? Grasim came out with massive capex announcements and plans to become number two in the market and the paint stocks tumbled. How would you approach the sector now?
There are two things. In the case of Asian Paints, when a big player like Grasim comes out with this kind of a large capex announcement, they will definitely cause some sort of short term disruption, though it is not so easy for them because Asian Paints has a brand presence and distribution which will take them some time to match. But they can definitely cause some disruption.

Second, Asian Paints valuation is not really cheap. It is not really in that value zone where you say that okay now it is a really good price to buy. I would be little wary of investing into paints or something like Asian Paints right now, I would rather look at other opportunities.

Interglobe Aviation came out with their quarterly performance and it was quite disappointing. Losses widened to Rs 1,680 crore; EBITDA was down 95% and now competition is bulking up in the space with Air India as well as Jet Airways coming back into the space. How are crude oil price spikes as well as all other factors going to impact Interglobe Aviations quarterly performance going forward?
High fuel price is hurting everyone including the aviation space and till we see some meaningful correction there on end of the war or whatever other reason, it may cause demand to come down with all the steps which central bankers are taking across the world. If that really happens, as far as the fuel prices are concerned, it can help them.

As far as business is concerned and their market share is concerned, it will take some time for the new players to find their feet and give them tough competition because they have a presence and they have their slots and it will be difficult for someone to prove it so soon. But the next few quarters would have to be monitored. If there is some meaningful correction there, that can get them back into profits and that is something which we need to watch for.

Are you specifically looking at any of the small and midcaps after the recent correction?
Lot of stocks are coming in the value zone because the earlier high valuations led to this kind of fall in the market but the only thing is till we see any meaningful correction in the fuel prices or any let down in the inflation numbers, there would not be any good improvement as far as the margins are concerned.

We have seen good top line improvements happening in a lot of the companies – be it retail, infrastructure – but margins are bothering everyone. But there are some sectors which one should be looking at. Capital goods infrastructure is one such sector where I feel there are good opportunities and their order books are very good. So any small correction in the raw material, fuel prices will really boost their margins. This sector helps real estate companies and include some home improvement names.

Even auto and auto ancillaries are looking good because even the commercial vehicles numbers are improving and that is helping the top line there. Margin is something which one needs to worry about for the time being, but going ahead, the kind of steps which governments are taking and interest rates going up, margin improvements will also happen.

So automobile, infrastructure and even the banking names should be considered. Banks are one space where there will be good demand for credit. Even vehicle finance companies have seen good AUM growth last quarter. That is also one space where we will continue to see demand.

Jubilant Foodworks is just Rs 15 away from the 52-week low. We have seen the compression of its PE. Certain brokerage reports are talking about upgrades. How would you approach this stock?
This is an opportunity because whenever Jubilant Foodworks has corrected due to any reason, it bounces back smartly because as far as the top line is concerned, I see it continue to grow. There will be some pressure on the margin because of food inflation but going ahead, if one has to keep a six months to nine months view, the stock should be back with some inflation cooling and the kind of opening up which is also happening, this is an opportunity one should look at.

What are your two stock ideas – either buy or sell?
Basically in the largecap space, HDFC Bank is now trading at a very attractive valuation. It is close to about two times book one year forward. One can basically enter through HDFC Ltd because you get HDFC Bank cheaper because of the merger ratio.

The second one is Shriram Transport Finance because we have seen the numbers were pretty decent as far as the AUM growth is concerned, their collection efficiencies have also improved, the kind of demand we have seen in commercial vehicles because they are the market leaders in used commercial vehicles finance so I think this is one stock which is trading at just one time one year forward book which is also very attractive.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)