Mohit Nigam of Hem Securities highlights 5 key risks that Indian market faces as we step into 2022 -

Mohit Nigam of Hem Securities highlights 5 key risks that Indian market faces as we step into 2022


Steep correction will lead to value buying at lower levels as the negative sentiments are unlikely to last long and high bullish momentum is expected to continue in the upcoming year (2022), Mohit Nigam, Head – PMS, Hem Securities – said in an interview with Zeebiz’s Kshitij Anand. Edited excerpts:  

Q) Indian markets are likely to close on a muted note for the week ended December 24. What are your views on markets for the last week of December?  

A) The last week might also remain muted as the foreign investor activities stay low due to the holidays of Christmas and New Year. The news to track over the week would be the spread of Omicron, as China’s city of Xi’an is entered into the lockdown.

Also, the month of December had seen selling from institutional investors and tapering from Central banks, these factors will be watched closely as they impact negatively to the markets.

The past week was filled with many debuts in the stock market, next week have a couple of IPO listings lined up, of the likes of CMS Infosystems and Supriya Lifesciences Ltd.

Q) This year it has been a muted Christmas. What has spoiled the mood for the markets in the last month of December?

A) In the final weeks of 2021, Indian markets witnessed sell-off and intense volatility, which ultimately spoiled the moods of investors, who were hoping for a positive end to a year.

Multiple headwinds, which global and domestic investors faced were:

1) Sharp rise in the Omicron-based Covid 19 cases, especially in the UK and other European Countries.
2) Interest-rate hikes of global central banks.
3) Foreign portfolio investors (FPIs) remaining net sellers of Indian equities.
4) Slowdown in economic recovery

The steep correction will lead to value buying at lower levels as the negative sentiments are unlikely to last long and high bullish momentum is expected to continue in the upcoming year (2022). Retail investors can use the corrections to buy high-quality stocks, particularly financials, whose valuations have become attractive.

Q) Has the market texture changed from buy on dips to sell on rallies as bounce back fails to sustain?

A) We believe the market is very much in a bull mode and the recent dip was a healthy timely correction. After bottoming out in March last year, the index has been rallying upwards continuously with no more than a 10% dip from the highs.

The recent sell-off was triggered by pessimistic sentiments on the back of interest rate cycle reversal, continuous FII selling and uncertainty relating to the omicron virus. However, strong buying has been witnessed at the support levels.
Though, the market is expected to be range-bound for a while ahead of Budget 2022 and quarterly results.

Q) Your views in the new IPOs, which made their debut on D-Street in December – Star Health, Tega Industries, Anand Rathi IPO, RateGain, Data Patterns, MedPlus Health, Shriram Properties, MaymyIndia and Metro Brands. What are your views on recent listing and what should investors do?

Star Health:

Star Health is one of the largest private health insurers in India with a market share of 15.8 per cent for the latest FY.

The company offers a range of coverage options for retail health, group health, personal accident, etc. with a primary focus on the retail segment, which accounted for 87.9% of the total Gross Written Premium in FY2021.

The company posted weak numbers in FY21, being an exceptional year due to withdrawal from a reinsurance treaty and the covid-19 crisis. However, the retail health market segment is expected to be a key growth driver in the industry due to low penetration of health insurance and high healthcare costs.

We advise investors to hold the stock for the long term as the company has the potential to outperform its peers on the back of one of the largest distribution networks comprising 779 branches and 11,778 hospitals across the country.

Tega Industries:

Tega Industries Ltd is one of the leading players in mining and mineral beneficiation. IT is the second-largest producer of polymer-based mill liners, based on revenue for the year 2020.  

The company has posted consistent growth in topline and bottom line. Co. has around 25% domestic sales and the rest is coming from exports. About 75% of the revenue is from repeat orders. Management is confident in maintaining the trend.

Valuations are reasonable as compared to listed peers (AIA Engg). Considering co. overall growth and niche place in the market, Investors should hold the stock for the long term.

Anand Rathi:

The Company acts as a mutual fund distributor, registered with the Association of Mutual Funds in India. It distributes mutual fund schemes managed by asset management companies and earns distribution commissions on a trial basis from asset management companies.

They serve a wide spectrum of clients through a mix of wealth solutions, financial product distribution, and technology solutions.

They provide services primarily through their flagship Private Wealth (“PW”) vertical where they manage 294.72 billion in AUM as on August 31, 2021.

 
As of August 31, 2021, PW vertical caters to 6,564 active client families, serviced by a team of 233 RMs. Also, 54.69% of their Clients have been associated with them for over 3 years, representing 73.55% of their total PW AUM, which shows their strength in the vintage of both clients and their AUM in their business. We advise our investor to hold this stock for long term.

RateGain:

We find the company attractive since it has no listed peers currently. The company is having a niche set of products & technology backed by AI and is deriving 95% of its revenue from leisure travel including 65% from the US.

Investors can accumulate stock for the long run but keep in mind the volatile nature of the sector due to prevailing Covid related developments.

Overall, any restrictions in travel can be a dampener for the stock since this can be a frontline sector to be hit. Hence, we advise buying with caution and for the long term based on the risk profile of the investor.

Data Patterns:

Data Patterns Limited is among the few vertically integrated defence and aerospace electronics solutions provider catering to the indigenously developed defence products industry.

They are one of the fastest-growing companies in the Defence and Aerospace Electronics sector in India. Seeing strong fundamentals and order books over the years and government initiatives such as Make in India may provide a boost to the company’s growth. We advise investors to hold the stock for the long term.  

MedPlus Health:

India’s second-largest pharmacy retailer, Medplus, has over 20% share in organized pharmacy retail, and majorly operates in Tamil Nadu, Andhra Pradesh, Telengana, Karnataka, Odisha, West Bengal, and Maharashtra.

On the back of strong fundamentals and ongoing expansion, the company is expected to deliver good topline growth with margin expansion.

Investors could hold the stock for long-term wealth creation, and any significant correction would be a good opportunity to accumulate the stock.

Shriram Properties:

Fundamentally, the company has previously suffered losses, has rising debt and displayed weak executing capabilities due to continuous delays in the completion of projects at times.

In our IPO report, we advised investors to avoid the issue as the company has no comparative advantage. Investors who have exposure in the issue are advised to exit their position.

MapmyIndia:

 
We have a positive view of the stock as the company has a unique business with no listed peers, decent financials with no debt, and strong growth prospects.

The company has a strong business model, experienced management, and a strong presence in multiple areas. Some of their customers include PhonePe, Yulu, Airtel, HDFC Bank, Hyundai, GSTN etc.

We advise investors to hold this stock for long term and new investors can also add this stock in dips. We believe 1250—1300 range can be an attractive buy in MapmyIndia.

Metro Brands:

Currently, Metro Brands has 598 stores in 136 cities spread across India. The company has planned to utilise the proceeds of the fresh issue towards expenditure for opening new stores under the Metro, Mochi, Walkway and Crocs brands and for general corporate purposes.

According to our analysis, long term investors should hold this stock for long term gains and new investors can accumulate this stock at levels of 400-430 as the company is well placed to benefit from positive industry growth trends given its strong presence, a wide range of brands and products which cater to all occasions across age groups and market segments.

Metro Brands is among the aspirational Indian brands in the footwear category which majorly caters to the economic to premium category of footwear.

Q) In terms of sectors IT, Pharma, and FMCG attracted some buying, while banking stocks remained on the seller list for the week. What led to the price action?

A) Sectors like IT, Pharma and FMCG saw strong buying in recent times. The emergence of new covid variant has created demand for booster shots.

Moreover, international pharma companies have successfully created covid pills. Developments regarding children vaccination program is also witnessing some pace now. All these factors contributed towards strong buying in the Pharma sector.

Positive deals and strong financial performance in IT sector along with an increasing culture of work from home is major contributor to the success of the IT sector.

We expect strong performance in IT sector for next few quarters. The IPO market has also witnessed the launch of many new-age IT companies which played a key role in creating traction in the IT sector.  

Selling pressure in the banking sector can be attributed to slow growth and underperformance relative to other sectors. Moreover, increasing uncertainty regarding the future of PSU banks in terms of government shareholding remains a concern for investors.

Q) What should investors do with banking stocks? Any levels to watch out for in the coming week?

A) We remain positive on the Indian Banking sector and see a better risk-reward ratio looking at the current valuation. Over the past few quarters, banks have strengthened their balance sheet through higher provisioning, fundraising, cautious lending, and strengthened risk metrics.

Recovery post Covid-19 disruption has been good and the capital levels are at all-time highs, PCR is strong with a reasonable contingent buffer as well.

Overall asset quality started improving, which will be reflected in the GNPA levels in the coming quarters. Bank’s focus on granting secured Individual Housing Loans, Auto, MSME, etc., continues.

Recently, banks have been increasing their focus on unsecured loans, such as personal loans, credit cards, and SME loans.

Credit growth seems muted in the wholesale segment. We believe the banking stocks are at the start of another growth phase from H2FY22. We can see support at 34500 and can expect to see rebound in Bank Nifty from this point

Q) Your top 3-5 stocks for January series with 3-4 weeks of outlook?

A) Here is the list of top trading ideas:

MTAR:

India’s space program is expected to post a 7.5% CAGR over FY 2021-25 as against-12.8% CAGR over FY 2017-21. Fuel cell system are highly reliable in emergency situation and can be used effectively for power backup technology.

It can be used in niche sectors marine and aviation. MTAR Technologies is a sole supplier from the Indian market to Bloom Energy as of Fiscal 2020.

MapMyIndia:

We have a positive view on the stock as the company has a unique business with no listed peers, decent financials with no debt, and strong growth prospects.

The company has a strong business model, experienced management, and a strong presence in multiple areas. Some of their customers include PhonePe, Yulu, Airtel, HDFC Bank, Hyundai, GSTN etc

GR Infraprojects:

The company has an in-house integrated model that reduces dependence on third-party suppliers for key raw materials, construction equipment, and other products and services required in the development and construction of its projects.

The company also has a very low debt with net debt to equity of 0.2x. The company has experience in the design and construction of various road/highway projects across 15 states. Recently diversified into projects in the railway sector.

Shakti Pumps:

Shakti Pumps is one of the leading brands in the solar pump space and also a major beneficiary of the PM-Kusum Scheme which targets to install 37.5 lakh solar pumps in India in the coming years.

 
Last financial year, it grew its business nearly 3 times with the help of Kusum Scheme and an increase in exports.

The management has guided to double its revenue to Rs 2,000 crores in FY22 with a healthy margin profile. Shakti pumps has announced soon it will start manufacturing motors and chargers for EV.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)





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