stock recommendations: FMCG could see earnings upgrade, but valuation still a concern: Nitin Bhasin

“If one were to go into such mechanical ways of valuation, it would be very difficult to one to say that where will we make money, but as again I go back to that, these are core holdings, these are defensive stocks, FMCG, and people are perhaps owning them for a shorter periods of time overweight or underweight,” says Nitin Bhasin, Ambit.But within the FMCG basket any stock that you can talk to us about given that we already have your top buys and top sells. So, anything that is looking interesting to you and with respect to the valuations as well, are they comforting at this point in time because they have not done anything for the past couple of years if we see?Nitin Bhasin: You are right FMCG as a sector valuations have remained rich, but remember in our country lot of valuations are a function of flows also, I will keep on going back to that, and the mutual funds, the institutional investors, they continue to own these names because these are considered to be quality companies. A few names that we like maybe more like the Indian domestic companies like GCPL we would like them but not going into a specific stock discussion please. I was also looking at some of your other top sells. Highlight for us, where is it that you do not see any valuation comfort now and you think valuations are at their peak and it makes sense to actually book profits if not completely exit?Nitin Bhasin: I would say when you look at the sectors again within the IT where we like it as a space, there could be some of the midcap IT companies which are perhaps very priced for the quality of the business, there is something like a Coforge could be one, something like Persistent could be another one where we think that these are really-really priced.

At the same point in time there could be stocks like DMart in the consumption space where we find them very-very priced, would remain away from such names.

And at the same point in time, I would say even consumer durable companies like Voltas which appear to be very priced and perhaps stuck in a very-very highly competitive zone where they are unable to create value from the one business of consumer durables that they are in or in the projects business.

Those are three or four names that stand out. But at the same point in time in the banks also we have highlighted before names such as Kotak, etc, are the ones. What we do not like is themes like I would say defence today which is like a talk of the town. There could be stocks such as Godrej Real Estate priced, again I would say so, though the real estate sector holds up really well. So, those are the five or six names which come to my mind as one of the key sell ideas that we would have from our basket today. I want to go back to FMCG again and this is my personal view which is that if you buy stocks which have 4.5% growth and sectors which are growing below the GDP and if PE multiples are 50, 60, how will you make money?Nitin Bhasin: Very interesting. If one were to go into such mechanical ways of valuation, it would be very difficult to one to say that where will we make money, but as again I go back to that, these are core holdings, these are defensive stocks, FMCG, and people are perhaps owning them for a shorter periods of time overweight or underweight.

But again, let us go back on the similar principles that if you look at many of these defence companies also in India which are fairly very large, large expensive companies, they are trading at more than 50, 60, even EMS companies like Dixon which we have a sell on one would actually say that they can grow much faster but their valuations are perhaps in excess of 50 times, 60 times again. Perhaps it is the mood change is what the market is looking for.

In the case of FMCG, the mood change for earnings growth trajectory, remember one is the valuations but the other is what is the earnings expectations and the market sometimes follows, but most of the time in the short term follows the earnings expectations trajectory and perhaps FMCG looks like one where the downgrades are behind us, I mean there is a possibility of some minor upgrades in the near term, let us see whether it builds up into a bigger trend.