#39;Investors can buy a mix of FMCG, healthcare stocks for short term#39;

August 19
14:02 2019

One can look at a mix of FMCG stocks that have done well in the June quarter and also healthcare/diagnostic stocks (which may provide some defensive flavour) to buy for the short term, Deepak Jasani, Head – Retail Research at HDFC Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q: The Nifty failed to hold on to gains and closed in the red for the week ended August 16. What do you see markets headed in the coming week?

A: Though Nifty closed in the red for the week towards the end of the week, it showed some bounce from the lows which is a positive sign. Unless there is negative news coming from the US, we could see some continuation of the bounce in the first few days of the week.

The expected governmental actions post the meeting of PM with the finance ministry to provide a solution to the slowdown may also lead to this upmove, though the extent may not be large.

Nifty could face resistance in the coming week from the 11,108-11,181 band and later 11,210, while it could take support from 10,895.

Q: Some of the stocks are hitting 52-week highs that include names like Avas Financiers, Apollo Hospitals, SBI Life Insurance, Trent, among others. Do you think the momentum is likely to continue in these stocks?

A: Stocks that hit 52 weeks high and closed near their day’s high in falling markets/lacklustre markets are likely to continue their upward momentum at least for a few more days.

Q: Any particular stocks that you prefer to buy on dips considering the fact their fundamentals are intact but are largely falling due to external factors?

A: One can look at a mix of FMCG stocks that have done well in the June quarter and also healthcare/diagnostic stocks (which may provide some defensive flavour) to buy for the short term.

Q: There are certain stocks that are trading at a discount to 5-Yr PE Avg —Sun Pharma, Zee Ent, Indiabulls Housing, Coal India, ONGC, Dr Reddy’s, Tata Motors, IndusInd Bank, Tata Steel, Eicher Motors, M&M, and GAIL. Are they value bets or investors should do more research before getting into names?

A: Discount to the past valuation parameters may not be the best way to shortlist stocks. There may be a number of reasons why stocks quote at a discount to their past valuation parameters including change in business dynamics, promoter/governance issues, misallocation of capital, business/commodity cycle turning down, etc.

Cheap stocks in some cases could become more cheap. Hence looking into the reasons for the cheap valuations and doing more research is advisable.

Q: There are certain stocks that are trading above 5-year avg—Britannia, Wipro, Infosys, HDFC, HUL, Asian Paints, TCS, Titan, RIL, and Bajaj Finance. Will the momentum continue in these stocks?

A: Premium to the past valuations may be one reason to look deeply at stocks. Valuation expansion will happen when growth in business has hastened, margins have expanded, revenue and margin visibility has improved, the competitive scenario has improved for the company or financial decisions regarding debt reduction or efficient utilisation of capital are taken, etc.

However one needs to check as to whether these positive factors are sustainable over a reasonable period of time or are transitory in nature.

Depending on the overall asset allocation followed or portfolio allocation followed and when the positives do not seem to be continuing for long, one can look at booking some profits and lightening positions in such stocks.

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