Some more consolidation likely this week; 4 top buy ideas now: Sanjiv Bhasin

Sanjiv Bhasin, Director, IIFL Securities, says , “data keeps changing very fast. You have to be a little more nimble in trying to book your profits. I still think the longer-term picture is there. But in the short run, I would expect some more consolidation, a little bit more weakness on the indices maybe in the coming week. Four top buy ideas this week will be Rattan Power, which can be a doubler from here; Coal India, Coforge and Bajaj Finserv.

Let us first discuss what really happened on Friday and post the finance minister's tweet. Having said that, I do not know whether that was the only reason that the markets fell the way they did, but the FII selling of Rs 2400 crore. Do you think that is going to get undone and we are going to come back in the green today?
Sanjiv Bhasin: Volatility is to be expected at new highs and I have been making the case that there is a little bit of froth on the markets and if we do lighten up before the election, which is a very big event, it will be only more positive for the market. Friday's event was on rumour mongering and interpretations, which the FM has denied.

But I still think that there can be a little bit of consolidation here. We are not going to get past those new highs so easily. It is more about stock specific movement, which I foresee. A large part of the earnings, the positives are built in. However, the underpinning remains that the US is seeing numbers which are now proactive. Now, there is a build-up of two rate cuts at least, which was a consensus one. So, data keeps changing very fast. You have to be a little more nimble in trying to book your profits. I still think the longer-term picture is there. But in the short run, I would expect some more consolidation, a little bit more weakness on the indices maybe in the coming week.

What about Kotak? Looking at the earnings, looking at how much damage has already happened to the stock price and the management also raising concerns that it is more a reputational impact of the RBI ban than the financial impact, do you think all that is going to correct now?
Sanjiv Bhasin: Well, take it with a pinch of salt. When we know such a big event happened on the RBI front, it was mitigated by the impact cost which they said. But numbers are actually way ahead of what the Street was making, which was the case which I was also making that private banks were suffering just because PSUs were outperforming and under-owned.

I thought ICICI Bank, Axis, HDFC, Bank numbers were more reasonable. Now, the valuation comfort comes because of the correction and it could be a cause. But how fast do the remedial measures take place? Bajaj Finance got its act together in six months, got a review and got it done with. I think Kotak will also be very fast off the block. I have always maintained that Kotak is one of the more expensive private banks for a reason.

One was the ownership of Uday Kotak. Second was the excellent credit quality and third was NIMs. At a time when liability franchise is weakening, the NIMs have come very strong. So, I continue to think it is a buy or an ‘accumulate’ on dips here. You will not get any runaway rally from here because there is over-ownership and people would like to shift into faster moving stocks. But as a brand, the faster they can get through this corrective phase, this will be back and forth running towards its way. So, we have an accumulate on Kotak Bank and we think this is a very good time as most of the negatives are priced in, the positives will be outweighed but time will have to be given over here.

What is your view on the quarterly performance from Avenue Supermarts? It has overall been in-line?
Sanjiv Bhasin: Yes, Avenue has done extremely well in the present circumstances and like I have maintained, consumption stocks and the retail outlets should do well. We had a contrarian buy along that 3500-3600 on Supermarts where we thought the valuation comfort was very much in. We still think you should book profit in capex stocks and get into some of the consumer names like Britannia, Nestle, Colgate and Marico. The whole basket is looking good and Avenue Supermarts should be a good play on decline.

What about PFC, REC? They were your top ideas all through last week and now news flow is impacting them as well?
Sanjiv Bhasin: They have been five-baggers in the last two years. Even if they see a correction of 10%, that has to be bought into. These are superlative plays. They were very undervalued when there was a 13% yield. I have been tracking them for the last five years and as a disclosure, we own them but you cannot make the case of re-entering stocks when they are in such a big bull run. It becomes very difficult to book profit only to see that whenever the results come, they are up 10-10% and results speak for themselves.

Asset quality has improved, power is in the best place ever and we think that maybe you can take some chips off. But my top pick here again is a smallcap power company because I think power is the sweetest play we have seen in the last three years and may continue for the next three years.

We are starting off a brand new week. You have already cautioned on volatility, taking some chips off the table but any buyer ideas?
Sanjiv Bhasin: Rattan Power, I told you that at Rs 9, 4700 crore market cap, 2700 megawatts in Amravati, Nashik. It is coming out of the NCLT. I gave you this same as JP Power at Rs 8 when it was an EBITDA positive and only the negative sentiment. JP Power is today at 13,500 crore market cap. How can Rattan Power be at 4,700?

I think this is a very sweet recovery, which is in the offing. If you go by their plant utilisation and once this NCLT is solved, this stock can be re-rated. Now, obviously, this is a slightly high-risk play, so do your diligence. But we have a disclosure in that. We have a position.

We think Rattan Power is a doubler from here. The second play is Coal India. I think the results were very strong and that is what I have been highlighting, that the merchant power business is giving superior yields.

Coal India, according to me, is a no-brainer. There can be a target of Rs 530, 550 on this, and a stop loss of Rs 456.

The third play is Coforge. On Friday, there was over-excessiveness on the Coforge results. The management sounded extremely bullish, particularly on the Cigniti Technologies takeover. It is a large takeover of something like $250 million. But the synergies are so strong that they are getting into the AI business in North America and so on.

Today, at this price of Rs 4,500, there is hardly anything to lose and you could at least sit on a 25% upside by the end of the year. The synergies have worked excellent and Coforge is one company, which is actually at the lowest attrition.

Secondly, they are now more balanced on the AI side, where they are increasing their footage by organic and inorganic growth. So, from my side, this is a blind play on the IT side.

The last pick is Bajaj Finserv. In the whole basket of insurance/cross-selling, Bajaj Finserv has been one of the better performers. We have a buy rating on this closer to Rs 1620, 1630. We think this can be an outlier over here. Given that Bajaj Finance has now gone through all the correction, this as a holding company, should do extremely well. I have a target of Rs 1850 to 1,900 in the next two months.

It is a critical week when it comes to earnings as well. You have got a whole host of Nifty-50 companies coming out with their numbers, Dr Reddy's, L&T, Cipla, Tata Motors, SBI. What is it that you would be watching out for closely?
Sanjiv Bhasin: State Bank will be very strong given that they may be able to, in the coming quarter, book the profit of Yes Bank which will be a bumper profit. Hero Moto is something which I would like to see the language given that two wheelers have been the best play but valuations are getting far stretched and L&T is something I should be watchful of because the best of capex stocks, valuations are now running very-very uncomfortable.

So, I would keep a close eye on the largecaps, Tata Motors included. A large part of the auto and capex, the best performance is in the price. Take some chips off, go in the power sector, like we said, go in some of the financial services. Look at IT and the biggest underweight which is consumption, which should now be a very sweet spot given that volumes are going to pick up even though margins may remain flat.