Ignoring the Moody’s downgrade, Phani Sekhar of Angel Broking picks State Bank of India (SBI) for a long-term buy. He says investors will earn from the turn of the interest rate scenario as SBI will be the biggest beneficiary then.........
Ignoring the Moody’s downgrade, Phani Sekhar of Angel Broking picks State Bank of India (SBI) for a long-term buy. He says investors will earn from the turn of the interest rate scenario as SBI will be the biggest beneficiary then.
"For now, one should be averaging at these prices and if you can bring that average price down to somewhere around 1900 or 2000 and sit pretty for 1.5 years, one can see a price of Rs 2400," he says.
Further, he picks Jain Irrigation with a one and half year perspective. However, he recommends that from a long term perspective BHEL should not be a stock in one’s portfolio.
Below is an edited transcript of Phani Sekhar’s interview to CNBC-TV18. Also watch the accompanying video.
Q: What is your call on SBI?
A: If you look at the Moody’s downgrade, the analysis was something that was not completely unknown. However it was a scenario analysis that predicated extremely higher amount of delinquencies which nobody is factoring in the market and that doesn’t look likely either, at 12% of gross NPS.
The point on lower tier 1 is very well know to the market and it is widely acknowledged that the rights issue might be difficult to sail through in this kind of current environment. SBI has relatively underperformed taking all these factors into consideration. So, after the Moody’s downgrade it was more of a sentimental reaction that you saw on the stock wherein the stock corrected but at the same time, considering all the factors it might also be bit difficult for SBI in the prevailing circumstances to start performing in a big way.
Ideally, investors should be patient and wait for the interest rate environment to turn because when that turns SBI will be the biggest beneficiary as the concerns on the stick loans will abate. As an investor, one should be averaging at these prices and if you can bring that average price down to somewhere around 1900 or 2000 and sit pretty for 1.5 years, one can see a price of Rs 2400.
Q: What is your take on Jain Irrigation?
A: It is very difficult to say because Jain irrigation has been structurally de-rated over a period of time, which is not a question for investors who invest in stocks with high growth rates and do not mind paying higher multiples. For example, currently you have the whole consumption basket which is trading at a similar valuation multiple where Jain used to in its hay days.
In order to maintain its growth rates of 33-35%, Jain Irrigation will require huge support from the state government in the form of extending subsidies to its customer base. It is now being anticipated that it might not pan out and at the same time higher debt on Jain’s balance sheet as well as its higher working capital cycle may not make things easier.
Interestingly, micro irrigation which is a sunrise sector, Jain being the market leader at 55% market share and you are actually seeing a lot of new entrants, hence, you are likely to see a scenario in which its market share of 55% will almost be challenged going forward.
The stock may not trade at 18-20 times which used to trade maybe until a year back. So, the valuation multiples may be more sedate at 13-14 times and to that extent the stock might be range bound at these levels. In order to make money investors have to wait for at least 1.5 years.
Q: What do you should the call on BHEL be?
A: I am not a great fan of BHEL as a portfolio stock for the simple reason that in the near term, while there are positives in the form of strong order book which will give visibility for the company, at least, for the next four years even if the order book accretion is very tepid.
Also, there is a buzz on an import duty being livid on imported electrical equipment that should also be a fillip for BHEL. But the kind of competition that is emerging and you are already seeing a trailer on that with what has happened with NTPC bulk tenders, it will almost be impossible for BHEL over a 3-5 year time frame to maintain its market share.
It is also expanding the capacity. Hence, from a longer term perspective typically I don’t see BHEL should be a stock that should be in your portfolio. However, since there are so many near term positives, the stock has been beaten down and it’s already trading at a lower end of its valuation zone. The investor can hold on and hope to make around 20% from these levels in a relatively shorter time frame and that is a point where one should exit.
more info
Ignoring the Moody’s downgrade, Phani Sekhar of Angel Broking picks State Bank of India (SBI) for a long-term buy. He says investors will earn from the turn of the interest rate scenario as SBI will be the biggest beneficiary then.
"For now, one should be averaging at these prices and if you can bring that average price down to somewhere around 1900 or 2000 and sit pretty for 1.5 years, one can see a price of Rs 2400," he says.
Further, he picks Jain Irrigation with a one and half year perspective. However, he recommends that from a long term perspective BHEL should not be a stock in one’s portfolio.
Below is an edited transcript of Phani Sekhar’s interview to CNBC-TV18. Also watch the accompanying video.
Q: What is your call on SBI?
A: If you look at the Moody’s downgrade, the analysis was something that was not completely unknown. However it was a scenario analysis that predicated extremely higher amount of delinquencies which nobody is factoring in the market and that doesn’t look likely either, at 12% of gross NPS.
The point on lower tier 1 is very well know to the market and it is widely acknowledged that the rights issue might be difficult to sail through in this kind of current environment. SBI has relatively underperformed taking all these factors into consideration. So, after the Moody’s downgrade it was more of a sentimental reaction that you saw on the stock wherein the stock corrected but at the same time, considering all the factors it might also be bit difficult for SBI in the prevailing circumstances to start performing in a big way.
Ideally, investors should be patient and wait for the interest rate environment to turn because when that turns SBI will be the biggest beneficiary as the concerns on the stick loans will abate. As an investor, one should be averaging at these prices and if you can bring that average price down to somewhere around 1900 or 2000 and sit pretty for 1.5 years, one can see a price of Rs 2400.
Q: What is your take on Jain Irrigation?
A: It is very difficult to say because Jain irrigation has been structurally de-rated over a period of time, which is not a question for investors who invest in stocks with high growth rates and do not mind paying higher multiples. For example, currently you have the whole consumption basket which is trading at a similar valuation multiple where Jain used to in its hay days.
In order to maintain its growth rates of 33-35%, Jain Irrigation will require huge support from the state government in the form of extending subsidies to its customer base. It is now being anticipated that it might not pan out and at the same time higher debt on Jain’s balance sheet as well as its higher working capital cycle may not make things easier.
Interestingly, micro irrigation which is a sunrise sector, Jain being the market leader at 55% market share and you are actually seeing a lot of new entrants, hence, you are likely to see a scenario in which its market share of 55% will almost be challenged going forward.
The stock may not trade at 18-20 times which used to trade maybe until a year back. So, the valuation multiples may be more sedate at 13-14 times and to that extent the stock might be range bound at these levels. In order to make money investors have to wait for at least 1.5 years.
Q: What do you should the call on BHEL be?
A: I am not a great fan of BHEL as a portfolio stock for the simple reason that in the near term, while there are positives in the form of strong order book which will give visibility for the company, at least, for the next four years even if the order book accretion is very tepid.
Also, there is a buzz on an import duty being livid on imported electrical equipment that should also be a fillip for BHEL. But the kind of competition that is emerging and you are already seeing a trailer on that with what has happened with NTPC bulk tenders, it will almost be impossible for BHEL over a 3-5 year time frame to maintain its market share.
It is also expanding the capacity. Hence, from a longer term perspective typically I don’t see BHEL should be a stock that should be in your portfolio. However, since there are so many near term positives, the stock has been beaten down and it’s already trading at a lower end of its valuation zone. The investor can hold on and hope to make around 20% from these levels in a relatively shorter time frame and that is a point where one should exit.
more info