Hindalco, JSW Steel and JSPL are top metal picks: Siddhartha Khemka

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Within the auto space, we like rural plays like M&M and also two-wheelers like Hero MotoCorp and Bajaj Auto, says Head of Retail Research, MOSL.

Do you think TCS, irrespective of the run up in the stock, continues to be a buy?
If you look at TCS, the numbers and the commentary represents two divergent pictures. The numbers show a marginal miss on the top line as well as on the margins front, but if you look at the granularity, the healthcare segment has done well.

BFSI, which is the major segment for them, has outperformed within the sector. The fall there was much lesser compared to some of the other segments. Finally, the deal wins and pipelines have been pretty strong. The management commentary suggests that the worst of the Covid impact is over and from here you could look at further improvement.

They have also worked on lowering the cost which is also supportive to some extent. Going forward, the view remains positive on TCS. We have seen in the past that the company managing business challenges across various cycles in terms of technology and business,has managed well and that comes out pretty well in this environment as well.

I would say that given the pandemic environment, the numbers were not that bad and we expect TCS to benefit from the Covid related tech spends over the next few years. That should also help them remain a steady player in the medium to long term. Near term, valuations have caught up. In fact, we see limited upside in the near term. Given that valuations are at a high, it is a market leader and so it has always been trading at a good valuation which would continue. We do not expect a fall, may be a consolidation at these levels. It is a good stock for a medium to long term perspective.

What is going on with metals? What a strong rebound one has seen in the entire metals pack! Today some of them may be taking a breather but it seems like something is afoot here across sectors — ferrous as well as non-ferrous. Most of these stocks have showed a fair amount of traction. Is there any investment opportunity here or do you think there is only¬†a trade?
Metals has been reacting to various news flows right from the positive macro data coming in from China and US which had raised hopes of an economic revival of sorts. Then you had some news flows from the domestic market where there was some chatter about the government putting in some import and some access to promote the domestic market from the overall metals pack.

Metals to some extent is linked directly with the global economic cycle and to that extent. At this juncture, we could think more of what metals are providing, rather than an investment opportunity. Metal cycles usually last much longer. The economic cycles have been shortening and that is something we are aware of and hence we keep evaluating the macro trend as well as the sector specific approach.

One can definitely look at some of the companies like Hindalco, JSW Steel and Jindal Steel & Power. These could be our preferred picks in the metal space.

What is the outlook when it comes to the auto sector? There was nearly a 15% decline in revenues in the Jan to March quarter and largely due to the Covid induces lockdown. You have seen a major impact in terms of low demand from customers within this space. Is there a lot more risk venturing within the auto basket? Is it going to be a very selective play here?

Yes, within auto, one has to be very selective. It is not a sectoral play anymore. You have some of the exports focussed companies, you have the passenger vehicle, two-wheelers companies. What we like within the auto space is that the rural theme is playing out well.

The rabi harvest was good. Then you had the normal monsoon arrival and forecast of a good monsoon. So far, we have seen the monsoon being better than last year and the government is spending on a lot of schemes including MNREGA.

Finally, the migrant labourers are going back to the rural farm sector leading to higher demand for not only MNREGA but for the farm sector and rural consumption. In this entire thing, the rural demand has picked up and that is what corporates across sectors have been saying. Within the auto space, we like the rural plays like M&M, which is a play on the tractor business.

On the the two-wheeler side, one can look at Hero MotoCorp which is more focussed on the domestic market and our larger play on the rural segment. Bajaj Auto also has a large part of exports and hence these two would be our preferred picks focussing on the rural theme within the auto space.

We believe valuations are still comfortable given that the recovery in the economy which so far looks to be better and faster than expectations. Going by some of the quarterly business updates, things are not as bad as we were expecting them to be.

So it is a gradual recovery. We will have to take things as and when they move and maybe one or two quarters hence, we will see the impact when the RBI relaxation goes, whether things become worse again. But at least for now, it looks like they have a grip on the situation. It is a slow and steady move and business growth should be back for some of these larger players.

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