asksandipsabharwal.com, says all the large group stocks have already done quite well. Look at the Tatas, the Mahindra Group, Adanis or Reliance. It is tough to pick out a group at this stage. The main thing is that if the economy can sustain 7-8% growth over the next few years, my guess is many companies and many groups will continue to do well.
These are the issues which all of us knew exist and that is the reason I was not very bullish on HDFC Bank to start with one after the merger was announced. I think many analysts are realising it now. Hopefully what this will do is that the negativity it creates will help the stock create some durable bottom and then it will come into the buy zone. Because longer term, it is a good bank, all of us know, but it faces challenges for the next one or two years and the key is now what would be the right price to enter into the stock.
My estimate would be near Rs 1.300.If we look at a holistic picture, the correction is hardly anything. If you see the way the indices have moved, the correction needs to be much more for many of the stocks or the indices by itself to come into a decent valuation zone. Remember that the small and midcap indices are at least 25% to 30% more overvalued vis-a-vis the long-term valuation. So, they are not cheap. So, the risk always remains out there.What is supporting these stocks and indices has been the incessant flows into mutual funds as well as PMSes, AIFs, etc, focusing on these categories. But fund flow led moves eventually reach a threshold and then correction happens. My guess is there should be more correction and that will be healthy for the markets.Some part of the moves in some of these stocks have been fundamental and some technical.
For movements especially in Tata Chemicals, where the base business is facing challenges in terms of profitability, the reversal could be faster. For Tata Motors and Indian Hotels where the companies are doing very well, reaction could be more moderate.Yes, it is possible because there is scope of profitability improvement in at least two of its businesses, the retail side, as well as the telecom side and the lack of aggression on the telecom side which they have recently shown, they have not hiked priced but they are not trying to compete on tariffs, that has created positive momentum both for what could potentially happen for Jio on the telecom side as well as Bharti Airtel These two are drivers for the stock. Petrochemicals as well as the refinery business tend to be cyclical. We will keep on seeing ups and downs in cyclicals. But on the retail and telecom side, there is still improvement potential.
The LPG price cut will hit the profitability of these companies because as far as I read, it takes them into selling these at a loss. Now, there could also be possibility of fuel price cuts going forward because crude prices are down and fuel prices actually can be cut and are not being cut. So, we do not know about that. So, that is an additional risk. These stocks have gone up so much. I think people should be wary of these stocks in my view.If ARPU has to go to Rs 300 over just a year, then the stock is still undervalued. But that is aggressive and that is what the company aims.
Whether they will be able to achieve that or not, it will be tough. But directionally, it is good. Bharti as a stock, once it started its improvement cycle, is continuing now and it will keep on continuing and typically, as profitability improves, stocks tend to keep on doing well. So, Bharti should do well.I would tend to agree with that because the run-up has been across the board in companies which are doing well, companies which are not doing well, and companies which are supposed to do well but have not done well till now. So, like all of us know, it started off with the railway and PSU defence companies and then it has gone down to other companies.So, longer-term the defence and railway companies could still do well, although the valuation right now is very extended and they could correct. In many of the others, the move has been unnatural and might not sustain.All the large group stocks have already done quite well. Look at the Tatas, the Mahindra Group, Adanis or Reliance. It is tough to pick out a group at this stage. The main thing is that if the economy can sustain 7-8% growth over the next few years, my guess is many companies and many groups will continue to do well.