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Last Updated : Feb 27, 2018 10:30 AM IST | Source: CNBC-TV18

Revenues of telcos to decline; like Aurobindo: Kotak's Prasad

Ample liquidity in the market could help it go up further but one needs be cautious of the risk-reward balance from a fundamental perspective, says Sanjeev Prasad, Senior Executive Director & Co-Head, Kotak Institutional Equities.


Ample liquidity in the market could help it go up further but one needs to be cautious about the risk-reward balance from a fundamental perspective, says Sanjeev Prasad, Senior Executive Director & Co-Head, Kotak Institutional Equities in an interview to CNBC-TV18, adding that there aren’t too many places where one can find the risk-reward balance in favour.


Moreover, the market cannot go up without the support of earnings and at present, it is unlikely to see earnings upgrades, at least for the stocks that the house covers, says Prasad.


He is also not very upbeat about the news of mergers coming from the oil and gas space – ONGC-HPCL, GAIL-BPCL, IOC-Oil India. According to him, they are more likely to be one company buying the other than mergers. He does not find much synergies in these so-called mergers with one being an upstream company and another a downstream.

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With regards to the consolidation and pricing war happening in the telecom industry, he believes the pricing pressure will continue for the short-term. He expects revenues for the industry to decline on the whole.


He also does not find the rationale behind Bharti Airtel and Idea Cellular trading at over 2 times book value.

From the pharma space, he finds Aurobindo attractive. The company is into a diversified portfolio and although their exposure to US is about 40-45 percent their revenues are not concentrated from products in the US. Moreover, valuations too are reasonable at 14.5 times FY18 basis, with an EPS of Rs 45.

Below is the verbatim transcript of Sanjeev Prasad's interview to Latha Venkatesh, & Anuj Singhal.

Anuj: This market has just taken one step back and two and three steps forward. Valuation wise looking quite expensive but do you think the liquidity could make a bit of a mockery of near term valuations?

A: It is possible if everybody starts thinking that the market is going up and starts putting money and yes, maybe the market have some more upside but ultimately as an investor one has to be careful about the risk reward balance from fundamental perspective and whether you look at the market on a top down basis or individual stocks on bottom up basis, there aren't too many places where you can find reasonable amount of reward risk balance in your favour and that's the individual call as to what level of individual risk one is comfortable with.

However, if I look at the broad market at about 17.5 times March'18 earnings, if I look at Nifty-Fifty as representative to the market, we are factoring almost 20 percent growth in the earnings for Nifty-Fifty index, so it is not as if we are conservative on the earning numbers. If earning numbers disappoint then the market is even more expensive than what the current earning numbers imply. In the same way if you look at stocks on bottom up basis given the fact that you do not have tailwinds of either the global interest rate cycle or domestic interest rate cycle anymore, it is very hard to imagine that the stocks can keep getting rerated without any earning support and you could have argued that PE could have got rerated at a time when you had a big decline in bond yields globally. However, that situation is over now, so we have to rely on earning numbers and at this point of time I do not see much scope of earnings upgrades for most of the stocks which we cover.

More to come



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First Published on Mar 1, 2017 11:01 am
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