Valuation too high in Eicher Motors, Emami, Hero Motocorp for comfort: Anand Tandon, Independent Analyst

In a chat with ET Now, Anand Tandon, Independent Analyst, says we are at higher end of the valuations curve but unlikely to see major panic in event of selloff. Edited excerpts

ET Now: What do you think about the correlation between world markets? Look east in the morning and get the cues from Asia and look west in the evening and get cues from the US and European markets?

Anand Tandon: Well you could also think that the US and Europe markets look at us and take cues from there but that aside, there is no question that there is a very high degree of correlation, especially among emerging markets. So if the emerging markets were to change, India will also have to follow the suite. I do not think we are doing anything which is exceptional vis-à-vis the rest of the emerging markets and consequently if you look at the rise that we have seen over the last two months, it has largely been emerging markets rally and the jitters that we are getting right now are probably also part of the same pack.

ET Now: With the kind of selling pressure that the broader markets have witnessed, could there be more unwinding in store for our markets especially if after the run up that we saw through March and April, as well as around June when that big sell off happened because of Greece concerns it just spirals into a downward bias with margin calls also getting triggered is this mirroring a similar situation?

Anand Tandon: So from a valuation perspective it would have been a lot better if the valuations are cheaper but they are not so. We are at the higher end of the valuations curve. On the momentum as I said, it purely depends on what the rest of the world does. The difference this time, however, is I do not think that the market is very heavy in terms of the retail position. I do not think too many people have outstanding positions which are very large because this rally that we have seen over the last two months has had a lot of sceptics and the positions are relatively lighter compared to what we have seen in the past. So you are not likely to see any major panic even if it were to sell off. Will there be losses? Yes, of course. The sell off can be deep but at the same time there are any issues in terms of margin calls which can spiral out of control.

ET Now: Coming to earnings, Hero Motocop, Eicher Motors, Emami... take your pick. Where is your conviction the highest? Eicher Motors has had a dream run but really among the three, where would you rather focus?

Anand Tandon: None of them are cheap. Eicher is probably one of the most expensive stocks. Of course, it continues to deliver very good numbers but I am not sure that in any industry if you are talking about 30-40 times forward earnings you are going to make a lot of money out there. So it will remain a momentum play. Same goes for Emami. Though it has fallen off a bit, the fact of the matter is that despite that, the valuation is not cheap and there are new issues with competition coming into the space that Emami works in. They do have hair oil and so on which is based on Ayurveda etc which has a recent entrant which is creating a lot of waves. That pretty much leaves you with Hero and the top line is likely to be good. I am a little concerned about the margins after TVS numbers because competitive intensity has been high and if they have had to sacrifice margins that may cause some discomfort. Again the stock is at a peak so it is not as if there is much valuation comfort either. But if you look at the cleanest story it is probably Hero, provided the margins do not show up any negative surprise.