Things will look up for market and banks in next 2 months: Nirav Sheth, Edelweiss Securities

In a chat with ET Now, Nirav Sheth, Edelweiss Securities, says will continue with hold recommendation on Maruti Suzuki



ET Now: Banks took it on the chin, a bit of a decline post the policy. The question is – is this here to stay or do you believe we could be nearing the intermediate bottom?

Nirav Sheth: I think we have already made the bottom and there are two things to look forward to. Going into the monetary policy, the expectation was roughly about a 50 bps cut. This was whisper number so as to say and obviously RBI governor came back with a 25 bps rate cut. I think what the market completely missed is the fact that we are getting into neutral territory zone for the LAF with the deficit zone and I think that is nothing short of game changing. You have got five years of liquidity deficit and you are going to get into neutral zone. To me that is a very strong pointer towards the fact that your rates are going to come down over the next couple of months. I think that is the beginning of a new trend and that is what the economy requires. So a typical reaction in terms of buying on rumours and selling on news sort of thing but we are done with that. I am fairly optimistic in terms of approaching the next couple of months for the markets and for banks in general.

ET Now: I want to draw your attention to Maruti because RC Bhargava believes that this is yen volatility and it has been worse in the past. They have dealt with it then and they will do so now as well. Some of the new launches are doing very well -- Brezza and Baleno, etc. Do you think the market should read into that or the fact that Maruti has been overbought, overstretched in the valuation parameters talk?

Nirav Sheth: The way I look at it is whether you like it or not, yen is an important part of the play. I think that people do not appreciate the fact that if you look at FY16 figures and if you look at FY15 figures, almost 75 per cent of the earnings happened because of the yen-dollar movement. If yen is going to strengthen, earnings are going to get downgraded and stocks will react to that, so that is one part. You cannot take away from that because finally your earnings drive the stock prices. In terms of what you refer to, in terms of the new models, they have done well but the fact of the matter is that there is no incremental build up of market share. So I think the markets are getting more competitive and segmented. You need new models but you are running on a treadmill and you top that up with the fact that valuations are trading at about 17 or 18 times. Now autos are not where you can take a five-year call and therefore you would be cognisant of the valuations that you want to pay. My analysis of hold recommendation right now, I do not think that we are looking at some sort of a change in view over here right now.

ET Now: What would be your call on Infosys, assuming that it delivers in line with what the polls are suggesting?

Nirav Sheth: It is easy. It is probably the best bet in the software sector and the reason is very clear. You do not have too many guys coming out and asking you what is your three-year, five-year horizon and what is the kind of revenues that you want to look at? So $20,000 target is a fairly aggressive target number one. The reason that it matters is because that gives me a sense of what my exit multiples are going to be in FY18 or FY19. Secondly, I think that you have got to have a reasonably good sense of how the margins are going to evolve. Probably, Infosys is the only company which has got reasonable. What I would say levers to margins in terms of utilisation levels is in terms of onsite offshore mix. Lot of the deals that are happening right now are happening on a fix price basis. If you execute that well, it means more margins for the shareholders and most importantly we could be completely wrong when you look at the next two, three or five years. You would need to have technology domain expertise because things are changing. You need to buy capabilities now and I think that Infosys is trending in the right direction. So the competitive landscape is changing and you want to be at this point of time with guys who are probably geared for that. I think Infosys sits at the top over there.

ET Now: It is too late to buy into cement stocks. Do you think the move has just begun?

Nirav Sheth: I would say the move has just begun. Over the last couple of years, demand had been surprisingly on the downside and that is about to change. I still believe that the real pickup in prices is some time away. We tend to track the utilisation figures and our view was that we are probably a year away from the time when a bump up in utilisation level led to a sharp uptick in prices. Again you have to put this in the context of what the valuations are right now. Most importantly, what is really surprising if I look at lot of data points for February and March, we can start figuring that the economy is almost picking up. Electricity figures, cement numbers, two-wheeler numbers, consumer durable numbers, almost 50 to 60 per cent of data points seem to suggest that it is picking up. This is very difficult to believe because we have continuously seen a downgrade of earnings. I think this is changing. We have been crying wolf for such a long time. People do not want to believe it and suddenly my sense is that in the second half, we will see a lot of things starting to move around. I am strongly getting those feelings right now.