Friday, 17 March 2017

Don’t rush to participate in market, choose good fundamental picks: HDFC Sec

Dipen Sheth of HDFC Securities recommends looking for fundamentally strong stocks, even if it means looking outside the index ones. He is upbeat on Repco Home Finance and TeamLease Services.

Bulls took charge on D-Street through the week as the market saw a firm rally. Equity benchmarks have clocked fresh record highs, with the Nifty even touching the 9200-mark on Friday. Domestic inflows were steady on a higher influx of money in equity mutual funds as well.

While the market remains at an all-time high, investors must not be in a hurry to participate but look for good quality stocks, Dipen Sheth, head of institutional research at HDFC Securities told CNBC-TV18 in an interview.

“Most investors will begin to panic on the feeling of being left out,” he said, adding that such investments then drive up the market sometimes. Instead, he says, one must look for fundamentally good picks. There are options available outside of the index as well, he stated.

Among midcaps, there are many good stories coming out of there. “The focus should be on bottom-up stories… there are stocks at good valuations in the space” he told the channel.

Among sector-specific picks, he was upbeat on Repco Home Finance in housing finance. “The stock has multiplied investors’ wealth and there is years of growth still left in the stock,” he said, adding that the firm has mastered the model of lending to non-salaried class. The stock looks attractive at 3 times price/book. Furthermore, he recommends looking at some high-quality NBFCs which are trading at cheaper valuations now.

Sheth is also positive on new age businesses such as TeamLease Services. He expects the company to double earnings before interest, taxes, depreciation and amortisation (EBITDA) over the next two years, driven by growth leverage and improving margins. On the growth front, he foresees many years of 20-25 percent growth as the industry is under-penetrated.

In specialised segments, he cites cases of Navin Fluorine and Vinati Organics, which according to him are high-quality businesses. He recommends looking at such chemical companies with high return on capital employed (ROCE).

Sheth also sees potential in home improvement space. As Indians are increasingly spending big amounts in decorating homes and financing them, plywood firms, housing finance and appliances will perform well.

Detailed transcript of the interview to follow…
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