#AskBQ: All Eyes On OMCs, Paint Stocks As Brent Nears $98/Barrel
#AskBQ | #ProfitmartSecurities' Avinash Gorakshakar and #AngelOne's Osho Krishan answer all your stock-related queries, in conversation with Alex Mathew and Smriti Chaudhary. #BQLive
Transcript
00:00 Hi, thanks so much for joining in. You're watching Ask BQ and BQ Prime. My name is Alex
00:04 Mathew.
00:05 And I'm Smriti Choudhury.
00:06 And over the next half an hour, we'll get you answers to all of your stock-related questions.
00:10 So send them in to us on any one of our social media platforms. Apologies for that. Send
00:17 them in to us on any one of our social media platforms. That was YouTube. You can also
00:21 send us messages on WhatsApp as well as on Twitter, and we'll get you answers. For now,
00:26 let me introduce you to the guests that we have today. We've got Avinash Gorakshakar,
00:30 who is Director Research at ProfitMart Securities, and Osho Krishan, who is with Angel One. He's
00:38 a Senior RA Technical and Derivatives. Thank you so much, gentlemen, for taking the time.
00:44 You know, I want to start with the first conversation, which has to do with crude oil prices. And
00:48 I'm sure that you've both seen it. I would like to point out to the viewers as well,
00:53 they've shot up over the course of the last few hours. In fact, this morning, you saw
00:57 that Brent crude was hovering above that $97 per barrel mark and inching closer to $98
01:04 per barrel. So to start with, Avinash, I'd like to ask you about the various companies
01:10 that would be impacted by this, both positive as well as negative. You have OMCs, you have
01:15 pain companies and various other companies that have crude derivatives that they depend
01:20 on. This will pan out in the rest of the year, not immediately, right? But it is a negative
01:25 for quite a few of these companies. What would you react to?
01:28 Good morning, Alex. I think clearly, Alex, rising crude prices, first of all, on the
01:35 macro side are not good for the Indian economy, because, you know, I think we are still a
01:39 net crude importing country. I think inflation also gets elevated when crude prices rise.
01:44 And as far as companies are concerned, I think, you know, the biggest losers would be the
01:48 oil marketing companies, because for them, whenever crude prices go up, their gross refining
01:52 margins come down. On the other hand, the upstream companies like ONGC, Oil India, you
01:57 know, typically these are companies which actually would benefit, you know, in a scenario
02:01 when crude oil prices go up. But on a broader basis, there are many sectors like paints,
02:06 speciality chemicals, carbon black, you know, tires. There are a lot of sectors which depend
02:11 on crude oil or crude oil derivatives. And that is definitely going to impact their margins,
02:16 maybe not in the September quarter, but at least in the December or, you know, hopefully
02:19 in the final fourth quarter of this financial year. So I think it's going to be painful
02:24 for corporate earnings. And I think you will see a lot of business commentary commenting
02:28 on this raw material input cost rise once the second quarter results start coming in.
02:32 So I think net net, it's not a good sign. I think whenever crude prices go up, even
02:36 the market reacts negatively, because crude is definitely, rising crude is definitely
02:40 not something the market likes. So I think net net, we'll have to wait and watch how
02:44 crude settles down. Anything beyond 95, 96 dollars beyond a particular level is definitely
02:49 not good news. And I think we should obviously, you know, factor in all that in the corporate
02:53 earnings, you know, as and when how this, you know, development takes place.
02:57 Thank you. Hi, Usha. What do you see on the charts? What is the what is the view on oil
03:04 impacting Indian markets and the stocks?
03:07 Very good morning. Well, adding to the point of Abhinash, which we have already mentioned
03:15 that there has been some kind of there will be some kind of rising in the concerns when
03:19 crude prices start moving upwards. But till now, we have not seen very drastic pressure
03:25 in Indian economy, because we already have benefited from the huge discounts on the imports
03:30 from Russian market. But there has been not very much indecisive movement that can be
03:35 seen as of now. But obviously, once the crude oil moves above the zone of 100, then that
03:40 will be a concerning situation for our market. But as of now, there are various sectors which
03:46 are looking very promising as of now. The oil refining companies are still having a
03:51 very strong potential on the technical charts also, and even from the fundamental perspective
03:56 also. So various companies like ONGC, Oil India, MRPH, Chennai Petro, these counters
04:01 are going to have a very strong potential upside movement because of the rising concerns.
04:07 Whereas some of the oil marketing companies like HPCL, BPCL, even the tiles manufacturing
04:13 companies can see some kind of pain while we can see the crude oil rising on a higher
04:18 basis. So there will be a mixed views. But overall, as of now, there will be a balancing
04:23 in the market. So some of the counters are absolutely going to benefit from the concerns,
04:28 while others can see some kind of lacklustre movement or even some kind of sell off in
04:32 the near future.
04:33 All right, let's start taking a few of the questions that have been trickling in. My
04:37 producers have sent some in that have come on email as well. But just a quick reminder
04:42 to everybody tuning in, you can use WhatsApp or you can use any one of our social media
04:47 platforms to send us your questions. I would like to ask about Reliance Industries. And
04:52 this is a question that has come in on email. For the short term, it has underperformed
04:58 in the recent past, gentlemen, and some have gone so far as to say that it is nearing that
05:03 oversold zone. Osho, on the charts first, and then I'll come to you, Avinash, on the
05:07 fundamentals. On the charts, would you say that Reliance Industries is at an attractive
05:12 level to buy even for the short term?
05:14 See, looking at the overall momentum that Reliance has seen in the current financial
05:20 year, it has gained from the levels of 2000 towards 2600. And again, on the weekly timeframe,
05:27 we have seen a kind of a breakout in this counter in the month of July. And again, as
05:32 of now, it is retesting the neckline of the breakout. So on technical perspective, it
05:36 is a very strong signal that from here onwards, we can see a strong rebound in Reliance. Even
05:41 on the technical parameters, it is hovering just near the 100 day EMA and even just above
05:47 the 200 day SMA. So that's a very positive development. Even on some of the technical
05:51 parameters, as you have already quoted that the counter has already been into the oversold
05:56 territory. So from here onwards, one can expect a decent upsurge in this counter. But there
06:01 will be a gradual up move because being a heavyweight, it won't be having very aggressive
06:06 upside targets. But gradually, it can move towards 2450. And once it, on a sustenance
06:12 basis, once it breaches those levels, then we can see 2550 to 2600 from medium term timeframe.
06:19 Fantastic. All right. So that's the view on the charts. But Avinash, a lot of factors
06:23 to watch out for Reliance Industries, right, on the fundamentals. One aspect, of course,
06:28 is what we spoke about crude oil prices. But what are the various triggers, according to
06:33 you in the September quarter as well as for the rest of the financial year?
06:38 I think, Alex, in the very near term, I think one main value unlocking trigger that is the
06:43 geo financial services business has already got listed. So I think the markets have got
06:47 some taste of value unlocking there. I think the second point which the market would await
06:52 is I think in the very near term would be the 5G rollout because that is a very big
06:56 opportunity and Reliance will be a key player in this market. Most importantly, rising crude
07:02 prices actually will not impact Reliance because it's a pass through. But most importantly,
07:07 how the telecom business does, the geo business does, how the retail business does, both these
07:12 businesses have done well. In fact, I was just reading the latest month's telecom numbers,
07:17 you know, additions. I think Reliance has added almost 14 lakh customers. So I think
07:21 traction is going to be rock solid. The retail business also is continuing to do well. So
07:25 I think you need a little more time for this stock to play out. My sense is that possibly
07:30 the second half for FY24 should be a lot better. And you could see a lot of price action considering
07:35 that the current price is almost flattish. I would believe over the next 6 to 12 months,
07:39 you could expect the price around 25, 50 to 2600. But I think in the very near term, in
07:44 the short term, I don't expect any major fireworks. Maybe in the medium to long term, you could
07:49 see a decent kind of re-rating there.
07:51 Okay. But would you say that it's a good buy on the basis of fundamentals at this juncture,
07:55 Avinash?
07:56 Yeah, I think if you have a 12 to 18-month horizon, Alex, I think in these kind of markets
08:02 where markets are extremely volatile, there's been a lot of selling pressure. I think these
08:06 are companies which have to be in your portfolio. They give you a lot of stability and capital
08:11 protection. And I think over the next 12, 18 months, you could see a lot of news flows
08:14 coming in from Reliance, specifically on the geo-financial business, on the retail business,
08:19 which I think a lot of people are expecting that retail would be the second business would
08:23 possibly get value unlocked over a period of time. So I think next 12, 18 months, definitely
08:27 worthwhile accumulating at these levels.
08:30 The next question we have is from Anil Dahifale. And this is for you, Osho. He said that he
08:36 bought 200 shares of MCX last year at 1560. Should he wholesale or buy? The stock is about
08:45 78% up from the last one year. So what are the charts showing?
08:50 See, overall, the MCX has seen a very strong rally in the current financial year. And it
08:56 has seen a strong rebound from the zone of 1300 odd levels. And as of now, it is on the
09:04 verge of giving a breakout from the lifetime high zones of 2100 odd levels. So overall,
09:09 technical setup is very robust for MCX. And one can even expect that once it breaches
09:14 the zone of 2100, then there can be a strong upside movement also. But in the past two
09:19 weeks, we have seen a strong recovery from the zone of 1700 towards the 2100 zone. So
09:24 in the near term, there can be some kind of pull-off that can be seen. So for short-term
09:28 perspective, the immediate support comes around 1900, which should be seen as an accumulating
09:34 perspective, which could be seen as an opportunity to accumulate this counter for a short to
09:39 medium time frame. But overall, for medium to long-term perspective, still, it has the
09:44 potential to move into the uncharted territory. So one should definitely try to stay invested
09:49 with the counter. And any dip towards 1900 should be used to average the positions for
09:55 medium to long-term perspective.
09:56 All right. So it's a hold on the technicals. I would think that fundamentals is also something
10:01 to bear in mind, Avinash, because MCX, to launch a new commodities derivatives platform
10:08 at the start of October, I think that's what's gotten a lot of investors enthused about this
10:12 counter. What's your view on the implications for the business? And would you say that on
10:16 the fundamentals as well, it's a hold and perhaps even a buy on dip strategy?
10:21 Yeah, exactly, Alex. I think the new platform would obviously generate a lot of interest.
10:28 As it is, MCX is a very large player on the commodity side. And I think the stock has
10:32 been moving quite sharply over the last one to two weeks. So I think investors who already
10:37 hold position should continue to hold. My sense is that the coming financial year will
10:41 be a much stronger year for MCX. But fresh investment should be made on market decline.
10:45 The stock has risen very sharply in a very short period of time. So I think, as you rightly
10:50 mentioned, it's a buy on decline. And definitely, as a platform business, I would say that once
10:55 volume stabilizes from the new platform, you could see a lot of operating leverage coming
10:59 in from this platform. So I think definitely a buy on decline. But yes, existing holders
11:04 can definitely hold on, I think, although the price has moved up very sharply in the
11:08 short term.
11:09 Thanks, Avinash. The next question is on email. And on the largest mover today, the
11:18 L&T stock, which has touched a 52-week high today after the UBS upgrade, target price
11:24 upgrade, and the target price is about 3,600, about 23% up from yesterday's close. How do
11:32 you see the stock considering elections are coming up and infrastructure expenses may
11:37 go up in the next couple of months? How do you see the stock fare?
11:42 Avinash?
11:43 Yeah. See, L&T, first of all, the good news is that the buyback which came, I think there's
11:51 been a report by the company that 100% buyback has been accepted. So I think shareholders
11:57 have got a lot of things to cheer. As far as the business is concerned, I don't think
12:01 elections or market volatility is going to upset L&T at all, considering the fact that
12:07 their execution track record in the last couple of quarters has been very solid. Working capital
12:11 management has also been very effectively managed. And I think the stock is definitely
12:16 in a very strong growth trajectory. I think looking at the kind of current order book
12:20 plus the kind of new orders which the company expects, basically, it's a combination of
12:24 infrastructure, capital goods, and defense. And I think all these sectors have been playing
12:29 out very well. Our sense is that over the next 12 to 18 months, definitely, I think
12:34 growth momentum and the earnings trajectory will be rock solid. So I think maybe on market
12:38 decline because the stock has moved up quite sharply today based on the UBS report. My
12:44 sense is that any decline in the stock at any point of time should be used as an opportunity
12:49 to add the stock in your portfolio.
12:51 OK. Interesting question coming in from Sandeep on YouTube. And this is a stock that is in
12:57 the news, gentlemen. This is Dixon Technologies. And we've just gotten news that the company
13:02 has signed a deal with Xiaomi to manufacture its phones and certain other gadgets. This
13:07 is not the first deal that it has struck with Xiaomi in the past, though it seems to be
13:13 quite a lucrative deal. Avinash, is that something that you think as well? And would you suggest
13:19 that Dixon is a good buy at the current market price?
13:21 Yeah, I think, Alex, looking at the kind of positioning the company has made in the electronic
13:27 outsourcing kind of market segment, there's no doubt that the order book trajectory has
13:33 been very solid. And execution from Dixon has always been very good. And I think you
13:37 will see that even electronic exports have been growing in a very strong kind of trajectory.
13:42 So I think Dixon is in a sweet spot. My sense is if you're given a time of at least 12 to
13:47 15 odd months, definitely with limited competition from domestic players and a very good order
13:54 book kind of position, I think you could see a little more re-rating even from these levels.
13:57 So this news is definitely sentimentally positive. But I think earnings growth also is going
14:01 to be a big variant, which obviously should be better in FY24 as compared to last year.
14:08 Thank you. The next question coming in is from Arshad on YouTube. He's asking, is it
14:12 a good time to rejig his portfolio considering he currently only has large cap stocks? So
14:18 should he add mid cap and small cap right now at this point? Avinash, what do you think?
14:25 See, I think large caps and mid caps, I think it all depends on the kind of alpha generation
14:30 the investor wants. I think small cap, mid caps have seen a very hefty correction in
14:35 recent times, largely because of a very high kind of outperformance in these stocks. So
14:40 I think there is a lot of value in even small cap, mid cap stocks, provided the investor
14:44 has a long term kind of time frame in mind. We have quite frankly easy money in small
14:49 cap and mid caps is now over. And I think anybody who wants to put money in the small
14:53 and the mid cap space will have to give a decent kind of time frame to see the investment
14:57 nurture into a good profit generating company. So I think if a portfolio has to be restructured,
15:04 I would still believe that, say, 60% one has to allocate on the large caps and 40% on the
15:09 small and mid caps. And I think you have to take a stock specific exposure. Broadly, I
15:13 think small cap and mid cap will continue to remain volatile, considering that now we
15:17 are going to see elections in the next six months. So market volatility will have to
15:21 be very high. And I think investors who have a high risk appetite should only follow this
15:25 strategy.
15:26 OK, so very important point being made, I think, Osho. I want to understand whether
15:31 on the charts based on what you've been looking at in the broader end of the market, which
15:36 has been resilient, if you look at it and the kind of moves that we're seeing in trade
15:41 today as well, there seems to be a little bit of resilience, more resilience on the
15:44 broader side than on the benchmark. Correct me if I'm wrong. But what approach would you
15:49 suggest that people should take? Avinash made a statement saying that easy money is not
15:54 available anymore. Would you concur? And what names are you looking at specifically that
16:00 still present opportunity in the broader end of the market?
16:03 See, I totally agree with what Avinash has mentioned, because the low hanging fruits
16:07 have already been gone from the markets, because there has been a strong rebound or a strong
16:12 upper rally that can be seen in the large cap, even in the mid and small caps indices.
16:18 So overall, mid cap and the small cap have seen approximately 20 to 25 percent of gain
16:23 in the current financial year, which is at par with the gains that they have seen in
16:27 the year of 21, in the financial year 21. So approximately the low hanging fruits have
16:32 definitely been out of the space. So one has to be very much selective in choosing the
16:36 counters from here onwards. No doubt we are expecting a very decent up move from here
16:41 onwards also. And we are being very bullish in the near to long term perspective. So overall,
16:47 on the benchmark indices for a longer duration, we are expecting that it will again move into
16:51 the uncharted territory. And on the small cap and mid cap, yes, they will continue their
16:56 upsurge. But one should be very much specific about the stock selection from the mid and
17:01 small cap companies.
17:02 Thank you. So there you have it, Achit. Next question we have is from Anas Ali. And he's
17:09 asking about the outlook on banks. He wants to hold on to something for the longer term.
17:14 So which one do you suggest, Avinash, in the banking sector?
17:19 I think in the banking sector, I think what is the current flavor is the public sector
17:23 banks. I think if you even compare today valuations for the private and public sector banks, and
17:29 I think you see banks like SBI, Bank of Baroda, Canada Bank trading at very attractive valuations.
17:34 And I think with a great growth of almost 10-12% in the system, I would not be surprised
17:39 that even the second quarter would be quite robust for all these banks. So typically,
17:43 we continue to believe that there's a lot of value left in the PSU banks, especially
17:47 the large frontline banks. And obviously, in the private sector banks, well-established
17:51 names like ICICI Bank or an Axis Bank or IndusInd Bank could be acquired. My sense is that over
17:56 the next 12-15 months, as long as corporate capex is strong, the retail demand continues
18:02 to be good. I would not be surprised that the banking sector would continue to outperform.
18:06 So I think despite volatility in the banking stocks, somebody who wants to take a long-term
18:10 view can definitely chip in in these stocks on every market decline.
18:14 All right. We've got a question coming in from Arjun Saluja, and he's asking about the
18:19 hospitals space. And it's an interesting question if you think about it, because, Avinash, maybe
18:26 about three or four months back, we were talking about a resurgence in the pharma and the health
18:30 care space. People are talking about it again and saying that this is the space to be. Indeed,
18:35 they did see quite a bit of a run-up. And what Arjun is asking specifically is that
18:40 hospital space. And he's saying he's looking at Rainbow very closely. He's looking to add
18:46 something to his portfolio for a period of three to four years. What stock will that
18:50 be then?
18:51 I think, see, Rainbow child speciality is a very niche player. I think we have seen
18:58 a lot of ramp-up on this stock. My sense is, Alex, you're right. Within the pharma space,
19:03 ancillary business like hospitals is definitely poised to do well, especially the speciality
19:10 kind of hospitals. And I think if the investor has a 12-18 month kind of time frame, because
19:15 typically these are capital intensive businesses, long gestation kind of businesses, so you
19:19 need to give in a little more time. So I would believe companies like Narayan Rudalay or
19:24 maybe Shalby Hospitals, typically even Fortis, these are companies which have got well-established
19:29 networks and very strong kind of exposure on the speciality kind of critical care kind
19:35 of services which they deliver. So I think over the next 12-18 months, I would not be
19:39 surprised that there would be a significant amount of good pricing power here. And plus,
19:43 the inflow of speciality is definitely increasing day by day. So these two, three companies
19:48 could be looked at from an investment point of view if the investor has a 12-18 month
19:52 kind of time.
19:53 Not Apollo Hospitals though, Avinash?
19:56 Yeah, I think Apollo Hospitals also could be a good long-term bet. But Alex, in terms
20:00 of the risk-reward, I would believe that if you look at Narayan Rudalay or you look at
20:05 a Shalby Hospital, my sense is that these are stocks where the risk-reward is still
20:09 in favor of the investor. Apollo Hospital definitely is the market leader, commands
20:14 premium valuations, and obviously also would do well along with the tailwind seen in the
20:18 hospital sector. But I think if you want to build a portfolio, I think obviously you need
20:23 to give some more allocation to companies where the risk-reward is in your favor. And
20:27 I think where the alpha is definitely better considering the base value of the stock price.
20:32 Okay. Thank you. The next question we have coming in is on ITC. The viewer Zumru is asking
20:41 about should he buy ITC at current levels. After Nomura's upgrade yesterday on India
20:47 from neutral to overweight, it mentions ITC as its favorite pick among other stocks. So
20:54 what do you think, Osho? Should he buy at current levels or should he wait?
20:58 See, overall, ITC has been one of the outplayers, outperformers in the recent 2 to 3 years of
21:05 time frame. But as of now, the counter is consolidating near a very strong range bound
21:10 of approximately 440 to 450 on the technical charts. So from here onwards, there can be
21:15 some kind of time-wise correction that can be seen in ITC. But overall, the structure
21:20 remains robust and one can expect the uptrend to continue. But on a longer term duration,
21:26 there can be an upsurge for short-term duration. One has to wait for a level-specific movement,
21:31 which is at 458 zone. So once it breaches the zone of 458, there could be some upside
21:37 movement in this counter towards 470 to 480 on the short-term period. But for longer duration,
21:43 one has to stay patient with this counter and gradually it will move strong momentum
21:49 from medium to long-term perspective.
21:51 All right, music to the ears to a lot of people that have had patience indeed for so many
21:58 years with ITC. Osho, as well as Avinash, thank you so much for joining us, for answering
22:02 all of the questions that our viewers had on this edition of Ask PQs. And to you, viewers,
22:09 hopefully that advice that the experts have dispensed today has been useful for you. We
22:15 will be back tomorrow live at the same time, 11.30. So keep your questions ready. In the
22:21 meanwhile, stay tuned, lots more coming up on BQ Prime.
22:31 Thank you.