Next 6 months, settle for a lower return and manage the risk: Amit Khurana, Dolat Capital Market

The next six months are going to be very crucial as to the long-term sustainability of this market and India as an economy. This is not the time to play high risk high return bets, said Amit Khurana, Head of Equities & Research, Dolat Capital Market Pvt., in an interview with ETNOW.

Edited excerpts:


Are you telling your clients that they should use the current weakness to buy into autos?

That is a tricky one because autos is a very large pack and to colour the entire pack in the same shade would be incorrect. In two-wheelers, we have had an absolutely negative stance for last so many months. That remains as we go along. In fact, we see competitive intensity, pricing pressures, margin pressures as well as inventory pressures sustaining for the next few months.

Four-wheelers is something where we still feel that there is some more pain left but from a valuation perspective, things seem to be bottoming out. We will wait for the numbers to turn around at least for a few months to change our stance.


Maruti is something that we have a relatively positive stance. In CVs, we would watch out for the numbers from July, August really to see whether pre-buying is taking place in the run-up to the emission norms transition.

Overall, we have a negative stance on autos but with a sort of positive tilt in favour of four- wheelers versus the other space. Auto ancillaries are definitely not something that we are recommending to the clients.

What about consumption -- the other pocket of the market where we are seeing continued pressure on margins and question marks around the potential growth outlook as well?

We did expect a soft quarter for consumer staples in particular. That seems to be unfolding broadly in line with what we were building into our estimates. There have been some pockets which have come out weaker. I would say overall than what we were building in also but it is pretty dichotomous behaviour on part of consumers because when we look at Indian consumer basket, it is a very large basket of staples as well as the discretionary spending.

Within these, you have contrasting behaviour in various segments. We looked at Blue Star numbers which is a classic discretionary consumption theme, the numbers have been pretty robust and that will be a rub-off on the other players like Voltas, which has been our preferred play and to an extent Havells.

But when you look at staples, most of the numbers have been quite muted . The staples have had a significant pressure on the volume growth and I would expect that to continue at least for this quarter. May be the later part of the quarter is when we would expect some recovery to start building in. But it is still some days to go for. Our stance is that staples will still face some pressure going forward. The possibility of a downgrade risk still persists and therefore it is better to be cautious on that one as we go along.

Is there money to be made in aviation or some of those oil marketing companies (OMCs)? Which one would you buy? They both would benefit because of decline in crude and strength in rupee. Between OMC and aviation, which one would you buy?

Well I am not a fan of aviation. I have always said this many times. Aviation as a business does not generate return on capital, return on equity over a longer period of time and in India, especially, the kind of challenges they face from high fixed costs just makes the whole business unremunerative.

Having said that, as an investor you always look up opportunities. One of the opportunities that we have seen over the last few months is the collapse of the largest player and other players gaining. That offers you tactical trades. But from a structural theme perspective, I am not a fan of aviation at all. At these valuations, most of these upsides for the other players is fairly well captured whether it is Indigo which is at almost at an all-time highs, or Spicejet. When you really have no other player to play around, most of that valuation is fairly now captured.

What has changed for rupee? It is not that the macros of the growth parameters are so strong or fiscal deficit concerns have been taken care of, Flows are just about okay. Instead of grand inflows in March, we have moderate inflows in April and May so far. But the strength in rupee is nothing short of impeccable?

We did not expect such a move but it has gone much better than what we were building into our estimates in the first quarter. But I must make a caveat here, the flows in February and March were pretty strong. I would not read them as normal flows. They may have tapered off in April but we have not seen major outflow especially in the equity market space.

The expectation is that if you have positive results on the election scenario, I would expect the debt market flows to start building up. Remember the debt flows have not been as strong for the year till date. In fact, they have been quite muted. They were more or less flattish when I checked the number last. It is primarily led by equity flows which have been much stronger. A perception issue is driving a lot of this flow that you will have a stable coalition post election. That is leading to a lot of stability in the rupee and the kind of strength that we are seeing.

Anything in particular that you are going to be tracking in the midcap space which you want to share with us?

We are typically looking for names which are primarily linked to the consumption. That is a direct reflection of the overall sentiment dependent on the economy. That is the one which we are watching out for.

What is a high risk high return idea?

Buy the stocks in the NBFC space but I could not recommend that. Essentially you are going to balance your portfolio. The next six months are going to be very crucial as to the long-term sustainability of this market and India as an economy. This is not the time to play high risk high return bets. You are going to be very careful. I would, in fact, settle for a lower return and manage the risk. In the next couple of quarters, that has to be the focus from an investor side rather than the other way round.