'Lots of Fresh Money In System Keeping Markets High': Sunil Jain of Nirmal Bang

As we move ahead in the second half of the year, the markets are already trading at lifetime highs, how do you see the corrections occurring after higher levels, and what is currently in the play in the markets?

There are only a few things that are right now working in favor or are being in the play in India. We are witnessing supply chain disruptions again and again in India and even in the world, the supply chains are getting disrupted. The Q1 earnings will likely be soft because of the disruptions, but this may lead to the Q2 becoming very strong, though yearly earnings may not be disrupted. Secondly, a lot of new people are entering the markets and we saw depository accounts which are opening right now per month are around 18 to 20 lakhs and a lot of fresh money is coming into the system which is keeping the markets high. Talking about the correction in the markets, it can come any day and what we see is that if the international markets see some corrections because of any reason, there is some disruption to the sentiment of the people, and we may also see a good correction in the near term.

From both trading and investment perspectives, are the dips currently a good opportunity to take fresh positions?

Yes, corrections will be a great opportunity. Suppose we see a good correction of let’s say 10-15 per cent in the market then it can be a good opportunity to enter the market. The situations are quite strong, and we’ve already laid out a lot, in the last 1-1.5 year the market is showing a lot of lead and the market is at a very high state. 

Post HDFC Bank's results which missed estimates, do you see any downturn in Q1 for the banking sector or how will the sector perform?

What I get from the HDFC's result is that there was an internal disruption in the company due to the employees not being able to move out, which is practical for at least a short term as you can't sacrifice life at work. This has disrupted the earnings more than the other factors. I feel this is temporary and it will come back again in the coming quarter. This can continue in other companies as well, but these are all short-term blips, and a lot of disruptions will come in the Q1 results. Again, due to this, the Q2 can become even stronger.

What is your take on the inflation part with several experts calling it transitory?

With the Fed calling it transitory, there are two aspects to get it, one is the base which is quite low and if we take the last month's CPI over there, it was around 5 per cent and last year same month it was around point one per cent, if we add up both and work out, it works out to be around 2.5 or 2.6 per cent which is more than two per cent. Secondly, why they are calling it transitory is because there is a lot of supply chain disruption, we are seeing the commodity prices are at lifetime highs and this is due to the disruption caused due to Covid-19 in different parts of the world. Once the vaccination starts at a good rate then definitely the disruption will cool off and it will bring down the commodity prices. So, this transitory nature depends on how the Coronavirus will turn out in the future, and if we see a third wave in our country, then we may see higher inflation continuing in the upcoming quarters too. 

What are your top three picks currently?

We focus more on the midcap side and will talk about stocks that we like in that space. We like Bajaj Consumer a lot after a few variations that took place in the company's management in the last one year and the new management is focusing on growth, and we have already seen it in the last 2-3 quarters. If it continues, we expect the company to post good numbers in the coming quarters too.

We also like Lincoln Pharma in the SmallCaps space, given the company's balance sheet and profitability. The company is a debt-free company generating free cash of around Rs 60-65 crore every year, whereas the market capitalization is around Rs 650 crore, so almost 9-10 per cent of cash is there. The company eyes around 18-20 per cent growth in the year and the valuation also looks attractive, hence we are recommending this stock.

Apart from this, we like ICICI Bank as the company's growth in the peer comparison is good and the company is also the market leader. In the last quarter, the growth was at around 13 per cent in advances. Even with its peers like Axis Bank and HDFC Bank, the company is outperforming, and even the asset quality and buffer for future NPA are quite healthy.