ONGC, SAIL are long-term picks: Rajat Sharma, Sana Securities

In a chat with ET Now, Rajat Sharma, CEO, Sana Securities, says if you are a pure value buyer who wants to buy something cheap and hold on to it, these are stocks to pick. Edited excerpts



ET Now: Do you track J&K Bank?
Rajat Sharma: No, not particularly J&K Bank but my general view on public sector banking and lot of these smaller banks is that this remains the biggest worry going forward because we have been seeing this quarter on quarter that while the market expects things to improve the NPAs and the provisioning keep on going up. If you exclude the private sector banks, the banking sector seems to be the biggest worry for the markets going into FY2017. At some point, the health of these public sector banks has to improve for the economy to start doing well because a lot of the public sector companies rely on funding from these banks where private sector banks do not usually extend funding to PSUs. So for a holistic revival, this is really important. Actually I think nobody knows how much pain is left in the NPAs so very worrying actually.

ET Now: I cannot help but talk about the oil and gas space, particularly the OMCs which are all trading at the day’s low -- BP, HP, IOC and Chennai Petro which had that news bit about some equity stake by the Iranian promoter too is trading at almost 7 per cent of the day’s highs. What is happening here?

Rajat Sharma: Primarily it is just negative sentiment that has been going on for a very long time. If you look at how crude prices have behaved since the beginning of this year, they have been up from about lows where they went below $30 to now close to $50. Recently, I was reading if they can sustain at $50 a barrel, there could be some rerating in this space. But more than the oil marketing companies in this kind of environment, I would actually be looking to buy into oil exploration companies and I have spoken about ONGC before with you. Right now remains my top pick for this month. So we have recommended that to our subscribers.

My reason is pretty simple. It is currently trading at Rs 206 with price earnings of below 11 on ONGC. The company really has no problems in terms of borrowings and they have very healthy reserves. They are consistent dividend players. The current dividend yield on the stock is 4.6 per cent. So I think if you are a value guy who wants to buy something and hold on to it for long time, this is one stock you could buy. Even if your capital does not appreciate in hurry, your dividends look like they are going to be secure for a very long time. So that remains a top pick. More than oil marketing companies, I think oil exploration in this environment would be a better bet for me.

ET Now: Any other high conviction ideas that you are in?

Rajat Sharma: Yes so as I said I think markets are still not really cheap to buy a lot of the stocks but we are looking to buy stocks in sectors which have seen lot of price correction over the last one or two years. So we are looking at the metal sector and in the metal space, the problem really is that most of these companies have so much debt on their books that even if there is improvement in the metal demand and stuff, a lot of these companies will keep struggling.

So one company which we thought does not have an overleveraged balance sheet is a government company and right now I am talking about Steel Authority of India and it is right now at Rs 39 a share. It is not that business of that company is coming to an end. They have been consistent dividend payers. They have got reserves in excess of Rs 40,000 crore. The debt on the books is approximately Rs 14,000 crore and the latest book value of the company is Rs 105 a share and yet the share is trading at 10- 12-year low right now.

So it is not like commodity cycle will never turn. So if you were like a pure value buyer who wants to buy something cheap and hold on to it, I think this is the time when you would buy stocks which belong to sectors which are facing these really bad external circumstances because of which they are available where they are. So I would like to buy this for one year to two year kind of time horizon.