Shyam Sekhar Stock Picks Recommendations for 2018

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Pee Vee
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Shyam Sekhar Stock Picks Recommendations for 2018

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Shyam Sekhar of Ithought has talked of his holdings and stock picks in ET.

Buy micro-caps, avoid mid-caps

I prefer to buy businesses where I am taking a three- to five-year view in the microcap and in the small cap space.

I am not looking at the midcap space because the midcap space seems to be over invested into and I would only look at it when people are selling them, not now, Shyam Sekhar said.

Buy metal stocks

My own thinking is Oil may not be too much of a worry. Oil prices may soften a bit rather than harden. That again will help the earnings recovery.

I expect commodities to come back sharply in the next financial year. You are already seeing a number of commodity companies especially in metals doing well. I expect this trend to continue.

The volumes are going to be strong and metals will again gain significant share of the large cap exposure and that is something that is certain to happen in the next financial year.

This year there has been a very muted response from institutional investors towards metal stocks. I expect the prices to lower a bit in the next financial year.

Buy commodity producers stocks

On economic recovery -- both local and global -- if you expect metals to do well, it means that now it is time to buy commodity producers, to buy companies which would gain if the economy picks up rather than betting on good old defensives.

Buy PSU bank stocks

Shyam Sekhar explained that it is better to buy wholesale banks, do not buy NBFCs.

I think that the NPA cycle and the slippages are all slowly receding. You noticed during the last RBI Governor's interaction with the media there were no questions on slippages which I found very interesting because that was a point of contention every time he came and he interacted with the media.

This time, people did not even mention it and that is a good indicator. We are also seeing news flows everyday on progress towards resolution of NCLT cases relating to the big metal companies. I expect that over the next 90 to 180 days, we will be putting this behind.

Benefit in metal stocks will benefit PSU Bank stocks

Subsequently, the metals space is going to be far more consolidated than it ever was and this is a very good pointer towards the future.

If the metals scenario improves, it is fairly straightforward to assume that the wholesale banking will also start looking up.

Not only can there be fresh alternatives for wholesale banks to lend as well to the newer buyers of these businesses who have better balance sheets, better credit worthiness to take on those lows. Wholesale banking as a pack looks good.

Don’t buy junk and low-quality stocks

So far as the market favourites of last year are concerned, one should be very, very careful because many of these companies have seen multiple expansions based on factors which are more short- term oriented, demand-supply mismatches and stuff like that.

Companies like that should be viewed very carefully. Whenever we give multiples, it is an indication that we expect the earnings growth to sustain for a much longer time to come but that caution has been thrown to the winds in 2017 because the flows from domestic investors have been so strong and the pressure to show NAV growth has also been at its peak in our mutual fund history, Shyam Sekhar said.

Avoid carbon and micro-finance stocks and housing finance stocks

There has been a lot of indiscretion in the way we have institutionally procured midcap shares. So, one should be very careful in what we buy in the midcap space. I am basically very caution on some parts and I have no hesitation in naming them.

First, carbon stocks. Second, microfinance. Third, housing finance companies. Fourth, NBFCs. These are some of the spaces where I think one should be very careful.

You should subject those companies earnings to continuous stress test.

Something happening somewhere remotely can affect these businesses. I am of the view that lending businesses are yet to factor in a technological disruption created by Aadhar.

Once the Supreme Court puts the Aadhar debate behind, I am of the view that a lot of retail lending is going to become commoditised and that will open the doors to banks.

I believe that going forward over a three- to five-year view personal credit is going to be measured far more acutely than it ever was which means that knowledge of the customer is not going to be such a difficult thing.

Lending businesses are likely to be transformed significantly and commoditised in that process so that is something that we need to look ahead.

Buy Pharma stocks

How you are looking at the overall pharmaceutical space given the kind of earnings that we have seen?

You have not seen some sort of a material recovery and the sense that a lot of investors have across the board is that one is remaining a little bit circumspect on the space, until things really clear out. How are you positioning yourself or what are you advising when it comes to pharma?

I have been watching pharma quite intently. It went through a phase of having this USFDA scare. A series of them affected several companies then you had all those alerts being given. I think that that cycle is receding and it is on the way out. Companies have learnt to manage their systems far better and I believe that the USFDA is also being proactive in releasing companies from all its notices of the past. But there is an issue of companies' profitability in the US markets that is still an overhang, Shyam Sekhar said.

Over a period of time, this will be addressed by the companies which have the ability to bring more products to market. So I think that doing more in that market is what will release companies from the pressure of lower revenues and consequently lower profits.

We are now going into a positive cycle. It may be early days yet but considering that it is a defensive space and there is going to be a lot of fear in the calendar year 2018 in global and Indian markets, a lot of money will move towards pharma.

I would like to invest on a graded basis as the news flow start improving I would definitely scale up pharma that would be my approach to pharma.

Buy agriculture stocks

We did see quite a bit of thrust being given to the agricultural sector in the budget. It brought that sector to the forefront very focussed on education, healthcare as well as agriculture.

The whole agri value chain looks like a very good long-term story. If you look at it from a three- to five-year perspective, I expect farm incomes to go up and the number of industries to come downstream as well. You may see a value chain getting established.

I expect the cold chain businesses to take off in a big way over the next three to five years. The agri space offers a number of parts of value chain.

There are number of opportunities to choose from each part of this value chain.

Input is an obvious part but if you look at how we viewed inputs, it was all based on the subsidies and other things in the past.

Efficiency will be the key driver going forward. Businesses which are run more efficiently will tend to be those that trade shareholder value. The businesses that are not efficiently run in the agri input chain may not be the ones that will benefit and there are numerous ways of playing this and I am very bullish on the agri input chain, in fact that is my most important focus area for the next year.

Buy HDFC Bank

I believe that this trade towards companies which have a fairly predictable earnings like an HDFC Bank or all your private banks, all your HFCs like HDFC, is more or less a done thing.

I believe that the trade will migrate towards risk in this year and that will happen with a lot of price movements. So, it is going to be a very volatile year but it is an year when a lot of opportunities will open up.

One should look beyond the companies that have performed well in 2017, one should closely scrutinise the companies which are either heading into an earnings upgrade or have just got an upgrade. I think that this is a year to do a lot of homework, that is what I would say.

Buy SAIL

Large cap, I am looking to buy one good metal stock. I am just look at-- there are very few choices so it is fairly simple. In the case of TISCO there is a rights issue I would like to where it stabilises post that dilution and you have SAIL so it is not very difficult to see where to choose, I have not bought much but I am still studying that so that I could scale up my position and use the volatility to buy into one metal stock.

Mid-cap stocks

Mid-cap is a difficult space and I am basically not looking at big mid-cap at this point in time I am more looking towards selling mid-caps because I find that a lot of stocks are being supported by the institutional investors by their SIP flows whereas the valuations do not support so it is only the money that is supporting I would only look to sell so I would not really look at naming a mid-cap stock.

Micro-cap stocks

My buying is mostly in the microcap space. It is too illiquid and it could lead to speculative moves which I would not like to create through my utterances so you must excuse me from naming a microcap, Shyam Sekhar said.
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