Sudip Bandyopadhyay’s 3 trading picks for next week

Betting on Bharat Electronics and NTPC among PSUs and ICICI Bank, says Sudip Bandyopadhyay, Group Chairman, Inditrade Capital. Excerpts from an interview with ETNOW.

This is not simply festive cheer though we are definitely seeing some amount of cheer ahead of Diwali. From a fundamental standpoint, are you still confident of the momentum building up? Do you feel the worst is behind us?
Definitely things are looking much more positive for the last week, 10 days than it was prior to that. It is predominantly on the back of positive developments in the global markets -- be it a de-escalation of trade tensions between the US and China or de-escalation of geopolitical tension between Saudi Arabia, Iran and the US.

Things are looking much better on the global front and that is probably the reason why global markets also have been generally buoyant and the risk-on mood for the global investor is to an extent back and that does reflect well on Indian markets. Domestic Q2 results, which have come out, have not been too bad. Expectations were muted and the results are by and large inline or slightly better than what the expectations were.

Also, there was a significant amount of short sell or not having position in multiple counters and at the first signal of things turning around in the global market, global investors as well as savvy domestic investors are trying to come and build portfolios. That is the reason why we have seen some amount of buying coming back in the market and that is good news.

After quite some time, things have started looking up in the market. We will have to wait and watch before we say this is a decisive break in trend and we will keep moving upward but having said all that, we are cautiously optimistic.

What was the trend that stood out most to you? Was it on the back of earnings? The fact that perhaps the worst has already been factored into the market and we did not see any major negative surprise?
As I mentioned, the expectations were muted in the first place. We all know what is happening as far as overall demand scenario and liquidity scenario are concerned. Expectations were really low. Having toned down the expectations, the market is lapping up the results which are coming because they are not so bad.

In a lot of cases, they are beating the expectations marginally. One or two slips have come but that slip is also marginal. The market is probably assuming that the bottom or the worst is behind us and things should start improving hereon. Of course, the festive cheer adds to the spirit.

When it comes to auto, is this a festive blip or do you see a fundamental shift in the proposition with regards to some of those names? Where would you look within the auto pack?
We are still cautious on the auto pack. Tata Motors moving up is a completely different issue. It has got nothing to do with festive cheer, it is predominantly on the back of Brexit finally happening in a structured manner and that definitely does benefit JLR. Also, the talk around Tata Group looking for a strategic partner for JLR is definitely good news for the investors. So that was for a different reason. A little bit of correction, here and there, in the auto share prices also was warranted,. They were looking really beaten down, but to say that the demand is back will be a bit premature.

We would not still venture into buying auto stocks at this stage, maybe some of the auto ancillaries can be looked at, predominantly, those auto ancillaries which will be in a position to gain from the transition which is happening in the automobile industry from the traditional to electric vehicles and the new generation, next generation vehicles.

What about some of the PSU names? It was a big week. IRCTC had a stellar listing. We also had BPCL on a run on the back of divestment buzz and more on that front, leading to a whole host of PSU counters buzzing. Which are the stocks that you feel are perhaps best positioned, if the divestent agenda goes through?
Generally, there is a lot of excitement back in the PSU stocks. A couple of things here, yes the IRCTC listing was stellar and that does bring back the excitement in PSU listings going forward. The entire PSU listing space was not looked upon very kindly because the way things were happening over the last few years was not very confidence inspiring from the point of view of retail or even institutional investors.

With IRCTC, where some amount was left on the table for the investors who tasted money on listing and that is fantastic news for future listings and divestments.

Second, most of the PSU stocks were beaten down mercilessly and lot of these companies were quoting at attractive valuations and were crying for valuation uplift. That is pretty much what is happening on the back of a) IRCTC listing and b) some genuine disinvestment talk.

If there is an actual strategic buyer who comes in and acquires BPCL, that will be great news. There is some talk about strategic action in BHEL as well and that again is good news. But having said all that, we have been bullish on Bharat Electronics and I maintain my stand. It is a fantastic company in the defence electronics space with a fantastic order book, great track record and good balance sheet. Current valuation is definitely attractive and it can be picked up.

On the power side we like NTPC, the industry leader, very efficient, there are a few issues on coal linkages, but by and large they are the best integrated player. Valuation wise, it looks great at current level, even from a dividend yield perspective it can be looked at.

We are still to see some of the major earnings from the banking pack. In terms of price action, we have started to see a bit of a comeback across the board there, what are you anticipating?
There was excitement back in the banking space. What we are looking at very carefully is ICICI Bank. We believe that it is a good time to get into this counter. In the last four-five quarters, you would have noticed that their asset quality has been improving, at least the deterioration has stopped and things have started looking up.

Also, in all the large NCLT cases where ICICI is involved, it seems recoveries will start sooner than later. ICICI has fully provided for these and so things will definitely start coming back to ICICI and that is definitely a positive. The retail asset has been growing, both on the personal loan as well as credit card loan and these are high yielding assets.

On the deposit side, the growth has been satisfactory, CASA growth has not been moderate but term deposit growth has been excellent. Overall, if you compare vis-à-vis peer valuations, it is looking very attractive and investors can look at picking up ICICI Bank.

As far as SBI is concerned, it can be looked at but between SBI and ICICI, we will go ahead and recommend ICICI at this stage. SBI can be looked at a bit later.