Worst not over yet in market; eyes on next quarter’s results: Dilip Bhat

“This kind of volatility and inflation will take its toll on the corporate performance over the next two to three quarters,” says
Dilip Bhat, Joint Managing Director, Prabhudas Lilladher

Will investors smile after last week’s comeback or is this just going to be one of those one-day smile or three-day smile?

These kinds of relief and sporadic rallies are bound to be there without any doubt and possibly that needs to be seen in that perspective. I do not think that markets are through with their worst. There could be some sideways movement, there could be spending off time by the indices at these levels and possibly some of these could still play out, but yes markets seem to be desperately looking for some kind of a respite. Possibly, that is providing the rallies in the short run but still in the next 15 days to a month, we will still see good movements either way.

Also, let’s not forget that the FIIs have still not stopped selling. All those things will play out and most important is the quarterly results which are going to come out now and the management commentary will have to be heard. While the economy seems to be on a very good recovery track, the corporates seem to be facing some kind of a issue in the sense that the government is trying to curtail inflation and which industry they will ask to curb their selling price is something that will be at the top of the mind when we start analysing the results and the scenario.

Citi has put out a chart which talks about market bottoms. Panic bottoms are made when Nifty is nearing a PE multiple of 14 times-14.5times and if I look at the forward looking estimates based on the revised estimates, we are nowhere close to that. Considering that when market bottoms are made, valuations are much lower, can I justify the current market by saying that there is some more scope on the downside?

I would agree with you on that and more so because I would say that the next couple of quarters we are still going to face headwinds in terms of uncertainty. We saw how the government’s prompt actions in the metal sector and probably in the cement sector, have kept the prices under control. I see a lot of those things coming across so many other industries also whether it is agri related or some other commodity related.

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Somewhere, some of these impacts will have to be felt and moreover the way the prices have corrected, what they keep on repeating there is going to be a stop profit, stop loss. We do not know who is in the position to pass on the inflation. But at the moment, the kind of inflation that we have seen and of course they are sobering down at the moment, but this kind of volatility will take its toll on the corporate performance over the next two to three quarters.
But more important is whether the management is very confident that the way the economy is recovering and the way the rural is recovering, is going to give enough confidence for the investors to really come out of their shell and be a little more aggressive. That remains to be seen.

You talked about the stocks and the stocks which have weathered the storm earlier as well and have the pricing power. Two such names are and . Both are reacting negatively today but for the medium and long term, do they remain a good opportunity to invest expecting a 20-30% CAGR?

I have two different takes on both the companies. Titan is a company to bet on because the way they do business in an industry that is changing very fast. The scenario for the large unorganised sector in the jewellery space is changing very fast. This puts Titan in a very strong position and with the kind of advertising that they are doing and the kind of brand equity which they have developed and are consolidating further, Titan seems to be in a much better position to capture the opportunities which are going to come their way.

I would still say that Titan should see a reasonably good CAGR and I am not sure about 20% to 30% but at least 15%-20% seems pretty much on the cards with a very strong ROEs kind of a scenario and reasonably good cash flow

As far as Asian Paints is concerned, they are in a dominant position and nobody can touch them but you look at the competition that is emerging.

is talking about an outlay of Rs 10,000 crore, JSW Group is going to make a good foray. They may not make money in the next two to three years but they definitely disturb the equation which Asian Paints seem to be very comfortable with. . So I think Asian Paints in my opinion has to sober down much more in terms of the valuations before it really looks pretty attractive. So, I am not too sure about Asian Paints but yes Titan looks pretty interesting.

Today, M&M was at new 52-week high. Clearly markets are very enthusiastic about the new Scorpio-N. What do you make of the stock?

What they unveiled yesterday was fantastic without any doubt. I can see the consensus opinion but everyone is very gung ho on this. M&M has already reacted quite promptly and so to that extent, a lot of it has got priced in as far as M&M is concerned.

Will I buy from these levels? I will certainly wait for a a good day to buy and possibly even from the current levels, looking at the uncertainty which is there in the passenger car segment and in the automobile segment, I would not buy into that kind of optimism at the moment. I would prefer that M&M is available at a much reasonable levels. If I have it, I will hold it but not buy at the moment.

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