Optimism in four-wheelers intact, two-wheelers should be back: Rahul Shah, Motilal Oswal

In a chat with ET Now, Rahul Shah, AVP, Group Leader-Equity Advisory Group, MOFSL, says one should invest at current levels. After the correction, the pain could be there for a quarter or so but once things return to normal, the valuations will become expensive.

Edited excerpts:


Would you like to come in on this entire divide between two wheeler versus four wheeler?

In the last two months post demonetisation, we already saw that the two-wheelers were being hit hard. Going forward, the things will start moving on. There was a pause in consumption. It is just a delay. It is not a stop. My sense is autos, two-wheelers definitely will come back. So going forward, I feel Hero as well as Bajaj should do well. Both the numbers were at least better than what the street was estimating, and slightly better including the demonetisation impact. So I feel one should look at the Hero at the current level. It will see a return to volume numbers. In four-wheelers, the impact has been negligibly or zero. Maybe there is no growth and Maruti’s numbers look flat but it also gives sign that optimism in four wheelers is intact. Now two wheelers should come back.

As a firm you like BPCL. My question is why BPCL and why not HPCL because BPCL has a lot of global business while HPCL is more like a clean play on India. If you buy HPCL, you are getting a play which is pure and simple.

I like all of them. I like the entire OMC pack as a whole. The term being simple, valuations are very comfortable whether it is BPCL, HPCL, IOC or all of them. We have seen the markets correcting and those stocks have just corrected 7-8%. There is a pause in the investments from the investors but where there is a value and where people see the visibility, those stocks have not corrected. This sector falls into that space. The people can see visibility and available at cheap valuations. This pause is just a temporary blip. So I have BPCL, HPCL in my radar. BPCL is quite stable in earnings and as a Nifty component as well. So BPCL is a better bet but I like all of them at current levels.

You also like Bharat Financials or erstwhile SKS. The challenge with microfinance companies is that we do not know what is coming next. Microfinance companies are already indicating that their total collections which were at 99.9% has dropped to 94% or 95% and also in terms of new lending there seems to be a big slowdown. Does it make sense to buy a company where we know that the terrain is not clear?

You are right and maybe the collection has come down to 92%. But the sector is growing at 30% and the stock is growing at 25% and this is just a temporary impact of what we saw post demonetisation. So a quarter or so can be impacted. Things will revert back to the business. I feel that is why we have been getting these stocks 30-35% cheaper than which were available a couple of months back. NBFCs were sector leaders for the entire markets which rallied a couple of months back. The sector from where the stocks outperformed was in the microfinance companies. So we need to get into the stocks with the management which is tried and tested for a couple of years and that sector which is growing and I do not see any other sector which is growing at such high levels and which continue to do well.

One should invest at current levels. Obviously the correction, the pain could be there for a quarter or so but once you start seeing things back to normal, the valuations will become expensive.