MOFSLs Yogesh Mehta is again betting on PSU banks, NBFCs

IT pack may remain subdued in 2019, Yogesh Mehta, V-P, Motilal Oswal Financial Services told ET Now in an interview.

Edited Excerpts:

ET Now: When do you see a material recovery coming in in the real economy data points?
Yogesh Mehta: The data points are all showing a very tepid kind of growth and particularly in auto and cement realisations.

Overall, it seems that some of the sectors are still not out of the woods from the GST. So they will take some more time, maybe next three-four quarters to turn up, but on auto numbers side, it seems that post this MSP hikes and the farm loan waiver, the rural segment should do well. So that should impact further positive for auto and probably one or two months down the line we may see again further uptake into the sales volume.

As far as events are lined up, so uncertainty will remain there throughout 2019, or at least for the first half, but if we speak about January, then Q3 earning season will start. The Q2 was the first indicator that corporate earnings are now turning on positive trajectory, which should continue with the low base effect of the last year, and it seems that Indian economy should show some positive respite from the pessimism of the last few quarters.

ET Now: How you would be looking at advocating some of your top ideas within the broader market, because up till now it was really about bargain hunting given the fall in midcaps and smallcaps. Would you rather say cash is preferred given the volatility you anticipate because of pre-election season?
Yogesh Mehta: As you pointed out rightly that midcaps and smallcaps are still not out of the woods, but they are available at quite reasonable or the attractive valuations.

So keeping cash would be hardly 10-15% rather than more than that. Investment theme for calendar 2019 could be PSU banks, in which government is providing recapitalisation and infusing liquidity. Asset quality is also now improving as we have seen in last two quarters, but the provisioning is yet to be seen.

So over two-three quarters we may see uptick. They are already available at deep discount and are far discounted than their book value. So there could be some uptick in PSU banks in 2019.

Moreover, post this liquidity crisis, NBFCs have corrected significantly. Now though they have bounced back smartly, yet there are select pockets available in the NBFC segment where one can look at again on the buy side from the current level, especially with the rural sector specific.

There would be a good opportunity again to look at rather than running behind all the sectors, which have already performed in 2018.

We would prefer that these are the two sectors, which are available at reasonable valuation and in midcaps there are many stocks which are available individual rather than sector specific so there could be quite a few names in Oberoi Realty or the Britannia of the world or the PVR which is on media side. So these are quite a few names which can be looked at in 2019.

ET Now: Despite the fact that the returns have been low single digits, Reliance Industries has been one of the relative outperformers for 2018. What does that tell you about the story for Reliance into 2019?
Yogesh Mehta: For Reliance, transformation towards telecom from oil & gas will drive growth in 2019. Jios equity value is at present about Rs 260 approximately, which can move up to Rs 280-290 in next three-four quarters.

Oil and gas again on the gas pricing and the crude oil prices which have gone down so probably that will give positivity. The margin can see more uptick and that will give better profitability.

Of course Reliance is growing by 22-25% growth rate year on year for last so many quarters so that will again give a good booster to the company, and probably downside risk is quite limited, and probably 2019 could be the year it can give a good decent returns for investors.

ET Now: What is it that you are feeling about IT? It has been a steady performer, the biggest outperformer sectorally in 2018. Do you sense that the optimism is in the price or do you think 2019 could also see the currency benefit and the US growth continuing to boost IT performance?
Yogesh Mehta: Now 2019 seems to be a bit challenging from the high base effect of the performance of the 2018 and rupee tailwind is not in the near term vicinity at least for next two quarters. So the growth rate will be 2.5-3% on the dollar terms and profitability growth can be in the range of 8% to 12%.

So we believe largecap IT stocks could see a mixed trend. Infosys and TCS can do better along wth a few midcap names, but largely it seems that the outperformance for the next year IT can remain subdued.

Original Article

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