You are here: Home>Collections>Hul

Cautious on India despite market rally: Dipen Sheth, HDFC Securities

ET Now May 7, 2013, 09.54AM IST
(Entire rally has been driven…)

In an interview with ET Now, Dipen Sheth, Head-Institutional Research, HDFC Securities, shares his views on the market and some sectors. Excerpts:

ET Now: What do you make of the recent rally in Indian equities? In quick time, the Indian markets have appreciated more than 6% from the recent low.

Dipen Sheth: The entire rally so far has been driven by two factors. One is the huge surge in liquidity and the other is the easing off of commodities, particularly gold and oil, which were the two headline commodities affecting India's economics, whether you look at the CAD or whether you look at the fiscal deficit.

What I do not like about this rally is its external factors which are driving this rally, nothing virtuous in what India is doing or what is happening inside of India whether at the corporate level or whether in terms of policy evolution and so on.

So, we will float up and down with the tide, we will float and down with these commodity prices and it is difficult to take a call. We are pretty much in some kind of no man's land right now after the recent run-up.

ET Now: Do you think DLF for this current year could be a special situation stock? They have reduced their debt by selling some of their non-core assets and the recent round of IPP will only reduce their debt burden further.

Dipen Sheth: Structurally yes, if you divest non-core assets and if you divest land which is unproductive, raise money, and deleverage your balance sheet.

Now in terms of what they have in pipe for their current launches and sales, some of the volumes and prices at which they want to launch at the locations that they have mentioned in their recent publicity drive, much look to be unrealistic at the margin to me.

Resale prices in those very areas where they are planning to launch at what I think are completely unreasonable prices. So resale prices there are lower actually than what DLF is planning to launch. So there is a little bit of a mismatch between reality and what the claim is from the company in terms of forward looking prospects.
ET Now: Markets have gone up and fund raising exercise has started again.

Dipen Sheth: As long as liquidity is there, fund raising can happen without rocking the boat too hard. So the fund raising appetite from the issuer side is driven by the fact that there is liquidity.

It is not reckless and if you will notice the parent of HUL which is Unilever is also promising to infuse something like $5 billion into the market. So the guys who are going to sell or tender their HUL shares will also have to find new things to do with the money they get.

Now will they continue to back seculars and stories like FMCG or will they say okay the big money in FMCG has been made, this is some kind of topping out and we would rather put it into the betas, I do not know what they will do but if you ask me, raising money right now when liquidity is high and some money is coming in through open offer such as Unilever, I do not think it is a bad idea at all and the market can absorb it.

Â  ET Now: What is your top theme in the market right now? What is it that convinces you most to get out there from a value growth perspective?
Dipen Sheth: From a broader macroeconomic prospective, we are cautious. Growth is falling off, investments are not taking off. The policy mix is also not evolving especially the earlier momentum which happened towards the middle or the end of last calendar year is not being sustained.

But within this tough situation, there are specific companies which are doing great work. For example, we were very impressed with Dabur's volume growth this quarter, but the stock ran up almost immediately afterwards despite valuations being fair and we continue to be fans of ING Vysya Bank.

ET Now: Do you think it is time now to hunker down expectations for autos? Interest rates optically have come down, but the real problem is that since there is very little transmission, auto demand will really not pick up in the near term?

Dipen Sheth: At the margin, any reduction in interest rates should make EMIs cheaper and so on, but the two big parts of auto whether you look at CVs or whether you look at passengers vehicles, so CVs are a function of let us say broader macroeconomic growth and particularly IIP.

Passenger vehicle demand or car demand is largely a function of discretionary confidence with consumers. On both fronts, we are driving into headwinds and these headwinds have been persisting for a while.

In the first six months or at least the first two quarters of this financial year, I do not think there should be any meaningful up take in the monthly numbers, but a lot of people including us are betting that somewhere around September-October and the months leading into Diwali, we should see a revival in demand purely because of a lower base kicking in and once that happens, prospects will look up.

So the much higher valuations that you see in a stock like Maruti - which has run up some 30% in the last five or six weeks -- are reflective more of that rather than just the 300 bps margin expression that they reported this quarter, which was of course very creditable.

ET Now: What about the energy themes and also the cyclical names right now, the commodity names? What are your top bets there?

Dipen Sheth: I do not think any of the refiners looks interesting. Most of the PSU refiners will continue to remain what I call value traps. A pure play refiner like MRPL has got execution challenges, otherwise it is pretty much the cheapest pure play refiner that you can find.

The biggest daddy in refining, which is Reliance, is stuck with upstream asset where it is unable to deliver meaningful upsides in volumes. So I do not think much is going to happen in the refining space.

1.17 % 6.60
Vol: 268 shares traded
0.57 % 3.20
Vol: 1940 shares traded