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    These are 2 conviction buys for IIFL’s Abhimanyu Sofat, here's why

    Abhimanyu Sofat1

    Story outline

    • Maruti increasing price should be taken positively by the investors.
    • If crude price comes down, then with rupee depreciation, itwould be bullish for the economy.
    • From a risk-reward perspective, one can own SAIL.
    Currency depreciation is good for India because we have become uncompetitive relative to other economies, Abhimanyu Sofat, VP-Research, IIFL, tells ET Now. Apollo Tyre and Hindalco are his best picks at this juncture.

    Edited excerpts:


    How are you reading into the move by Maruti? As miniscule as it may be, they are beginning to react to higher commodity costs as well as currency fluctuations. They have hiked product prices across categories.

    It is clearly a positive, considering that last quarter was marred by raw material cost increase. Going forward with currency depreciation, there could be further pressure on margins. Maruti being the leader is showing the trend and considering that the stock price is lower than a couple of months back, it could be a good opportunity to look at Maruti because they are likely to do better, given that the rural market is showing signs of improvement.

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    Hopefully with the currency depreciating, one could see some improvement on the export side as well because last couple of years export has not been that great a story from India. It is overall a good thing that Maruti is increasing prices. It should be taken positively by the investors.

    What is your take on SAIL? It is a local steel manufacturer. It has got nothing to do with what is happening in Europe or America. If at all, SAIL will benefit because realisations are linked to global international prices and because of weakness in rupee SAIL’s realisations should go higher. Should one buy the weakness in SAIL?

    I am not sure one can completely delink because in the last quarter, we have seen that the import of steel from South Korea and Japan has drastically increased to the Indian markets. India now has become a net importer of steel which will clearly have an impact on companies like SAIL.

    Having said that, the main issue with SAIL over last couple of years has been the high employee cost that the company has been plagued with, considering it is a PSU. In terms of valuations, from a risk-reward perspective, one can look at accumulating this particular stock because the auto sector and the engineering sector growth is likely to be good. There could be some volatility because of currency movement and impact on global commodities. But one can look at buying these stocks.

    Does it make sense to go beyond the largecaps and look at some of the smallcaps for a short-term trade?

    Yes absolutely. We have been advocating the same for last couple of months -- whether it is Zensar or higher market cap -- something like a Tech Mahindra where the growth is going to be pretty decent going forward. These look like absolute buys to us at this particular juncture. It is not only to do with the currency depreciation but otherwise as well.

    There have been some green shoots in the US banking (BFSI) space. Some of the bigger ones are still a little bit worried about the growth but in smaller ones, I have seen some kind of traction in terms of growth. One should invest in IT sector. It is a good sector to be in considering that global volatility is making people go for sectors which have more margin of safety. From that perspective, it is a good space to be in.

    Where do you see the current account deficit balance pan out? Ruchir Sharma for instance in his interview this morning to Economic Times says the current account deficit is something that is being watched. Whenever we have a strong dollar, he says, it has never been good for developing economies like India. Do you sense that the current account deficit is going to weigh heavy on markets?

    There is the risk of current account deficit going to around 3%. If you analyse the latest numbers in terms of export-import, exports have gone up by 14% whereas the imports are up by close to 28%. A large part of the increase in import has happened because we have seen the oil import number going up substantially in addition to what we are seeing on electronics plus more than 40% increase in case of gold imports.

    Currency depreciation is in fact good for India because we have become uncompetitive relative to other economies. In last four years, there has been hardly any growth in exports from India. Our currency has already appreciated by close to 20% and RBI last year tried to wane in appreciation of rupee. This year, if it trying to sell dollars to ensure stability in rupee, that is more or less fine considering where our reserves are right now.

    Currency moves in a sharp way and depreciation of rupee is quite healthy for the Indian economy. What Made in India was not able to do in terms of growth of engineering and core sectors, could see a rebound going forward as we see the benefits of the depreciation in the economy. The only negative could be inflation but if the crude price comes down, then overall it would be quite bullish for the economy.

    What about some stock ideas which are still a conviction buy for you?

    There is Apollo Tyre, where we are expecting to see a significant improvement in capacity utilisation at the Hungary plant as well as the robust growth in the commercial vehicle segment. Although there could be some small time impact because of the rains in Kerala in terms of the rubber plantation plus depreciating rupee, in next two to three quarters, the tyre sector should do pretty well. That could be an interesting stock to own at this particular juncture.

    In addition to that, from metal space, something like Hindalco also looks quite good to us at this particular price in terms of risk reward because the new acquisition is also likely to be EPS accretive. Further, getting into new products within automobile in the US market is likely to be pretty good for the company.




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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