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SAIL is new GAIL? Sanjiv Bhasin’s 3 dark horse picks

Sanjiv Bhasin, Director, IIFL Securities, says they remain extremely bullish on this space. There will be upgrades, downgrades at new highs. Who thought Tata Steel will go to Rs 165 from Rs 100 in the last six months and right now, SAIL is the new GAIL. So, one can imagine the left-out feeling.

Bhasin says: “We continue to be very optimistic. Our dark horse play there continues to be Nalco, JSW and Vedanta.”

Over the last week, the metal pack had a very solid run. But today, CLSA has downgraded JSW Steel as well as Tata Steel. Do you think they are a bit too conservative and early in downgrading or do you think the rally has played out?
Sanjiv Bhasin: Since a couple of weeks ago, I have been saying that the dollar is headed lower and if China comes back, we will see metals do well. We have seen that there has been no capacity addition. And I think the way nickel, copper, all both ferrous and non-ferrous are performing, this could be a very sweet time for metals, particularly commodities, particularly metals. And we remain extremely bullish on this space.

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So, there will be upgrades, downgrades at new highs. Who thought Tata Steel will go to Rs 165 from Rs 100 in the last six months and I think right now, SAIL is the new GAIL. So, one can imagine the left-out feeling. So, we continue to be very optimistic. Our dark horse play there continues to be Nalco, JSW and Vedanta. Vedanta has clearly outlined a reduction in debt through internal cash flows. And if you see the sum of business which they have from Hindustan Zinc to Balco to anything to do with silver and Sesa Goa notwithstanding, they are in an extremely sweet spot as the going goes.

Vedanta can be a very big dark horse over here. We are overweight on this and any decline should be used as an opportunity to buy. A disclosure, both Nalco, SAIL, Vedanta, Tata Steel and JSW are in our portfolio.

Other than the steel names, tell us, given that you have predicted a volatile March, what are the other stocks that you are keeping on your buy list?
Sanjiv Bhasin: Yes, you are reminding me every day as we go higher. But yes, that is where the caution lies. Closer to 10th, 12th March, it will be difficult and there will be a much needed correction. Now, how long that stays, we do not know. But from such levels, we will see an inevitable correction as a lot of good news gets priced in. But right now, enjoy the party because there has been pessimism at its highest from the FIIs and now with GDP numbers and Nikkei hitting 40,000. equities are in a sweet spot.

Plus, dollars and bonds are headed lower. We are very optimistic about the oil marketing companies. This is a permanent business which is going to stay. So HP, BP at these levels after a sharp correction are very good buys. Our dark house play is AU Bank. It can be a surprise candidate and Bank Nifty is looking extremely poised to hit new highs. So AU Bank given its pedigree in smaller states where they are expanding their credit franchise and I think deposit franchise for them as a CASA ratio will start to see accretion much before the large cap plays. We also like Patanjali. Do not miss the rural play which is coming back first in autos and now in consumer spending. I think Bata and Patanjali continue to be very, very good players with a three to six month view which can generate very good alpha over a period of time.

Let us see whether Patanjali creates that alpha or not. But what has been creating a bit of alpha of late are the pharma stocks. Aurobindo Pharma, Suven Pharma were locked in the circuit as well on Saturday, the 5% circuit on low volume, for what it was worth. But then positive news flows are backing this. Aurobindo Pharma today has a positive note coming in from PhillipCapital wherein they have raised the target price to Rs 1400 and for Suven that deal clearly got a thumbs up from the street. Are you tracking these two names closely?
Sanjiv Bhasin: We have had Aurobindo from much lower levels, closer to Rs 650 and it has been a stellar rise, particularly in the injectable markets. Right now, for us, two overweights are Ipca Lab and Biocon. These three coupled with the largecaps – Cipla and Dr Reddy – make a perfect combination. Lupin has been another one of our stellar plays all the way from Rs 750 and we think the new generic markets are now going to create even more space.

So, it will get confusing for most investors. The best thing to buy is the SBI Pharma Fund or the Nippon Pharma Fund. Mirae, these three have a good portfolio, they have a very active fund management team and if you buy from logistic or lab-oriented to pharma, generic, if you buy a mutual fund, you will be in a sweeter spot, which is tracking the whole gist of 8-10 sectors in the pharma space.

But for the day, we have seen a couple of these real estate companies announce fresh orders. Whether it is Godrej Properties which is looking to expand its presence in Bangalore or Signature Global wherein they have also announced some fresh projects, what should one do with respect to real estate right now?
Sanjiv Bhasin: Stay invested but take some chips off the largecaps like DLF and Godrej and buy Indiabulls Real Estate. As a disclosure, that has been our top pick from 85-90. It has just hit 120. Embassy, arguably, is the largest real estate executor. It can do one lakh crore of order book in the next two years.

Now with this merger being given the green signal by the middle of March, once Embassy has control over Indiabulls Real Estate, one cannot get a better pedigree to play the reality sector. The market cap of Rs 6,000 crore against an inventory which is arguably the fourth largest in Maharashtra and Delhi and NCR region. Indiabulls Real Estate is a must-have in your portfolio. For us, that is the dark horse which we want to play on the real estate side because the market cap is giving us a sufficient amount of comfort for an upside.

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