Vivek Mavani is still bullish on select midcaps in auto and ancillaries

Vivek Mavani, Independent Investment Advisor is betting on Bajaj Auto and Hero among two-wheelers and auto ancillaries like Swaraj Engines and JK Tyres. Mavani was in conversation with ETNOW.

Edited excerpts:

How are you approaching this market?

Well certainly with caution because the rally that started towards the end of February has been too sharp and too fast for comfort for a lot of market participants. A lot of hope and expectations were hinged on the earnings for the fourth quarter and the outlook going forward and the results so far so barring the largecap IT and few other select pockets, have been more disappointments than pleasant surprises.

One strong pillar of strength for the markets over the last five years, which had also been one of the leaders, is the consumer space and most consumer companies barring Jyothy Labs will talk about that separately. But leading FMCG companies -- be it HUL, Dabur or a couple of other companies have disappointed both on volume growth as well as on the outlook going forward.


Jyothy Labs is probably the only one where they are not even talking of a slowdown or a recession. The word recession was used in the Hindustan Unilever conference call but yesterday I was on the interaction or the investor meet at Jyothy Labs and they are still guiding at about 14% to 15% growth in the current year with perhaps no price increases. They are expecting double digit volume growth in their businesses with probably equivalent earnings growth margins being maintained.

You are not buying afresh right now, are you?

One needs to be cautious and especially from the earnings point of view, and not so much about the politics and election, according to me.

Do you also see quite a drastic drop given the global picture right now? Are we heading for quite a critical period now in the next couple of weeks?

We may not see any drastic fall. It is not that the market cannot correct another 5% on the indices and the stocks cannot correct another 10-20%, but I do not think it is happening tomorrow or next week. Probably, it will take a few weeks for that to happen. It is going to be more gradual although I do not lay much emphasis on the election outcome.

Finally, three months or six months later, elections would have been forgotten and we would have probably been again looking at earnings only. But any kind of disappointment from the election outcomes could result in a drastic fall towards the third or fourth week of May. But I see that only as a remote possibility. Markets will find its own course based on the fund flows and earnings subsequently.

What about Titan. If it fails to meet guidance, would it hugely disappoint the street?

Well disappointment yes because the management had guided four quarters ago at growth of about 25%. Post the second quarter, they revised it to about 20-22%. The third quarter, they maintained that 20-22%. Now if that were also not to come about in terms of delivery, then it would be a disappointment. But from a 3 to 5 years’ perspective, the jewellery business can continue its growth rate at about 15-16%, which for Titan is doable.

So, I would not be so much worried about may be one quarter of miss on earnings based on the guidance. The stock may correct but let us also realise that in the last 12 months, Titan has probably gone up at least 40% while the broad markets have been negative and indices are probably plus or minus 3%-4%. So, Titan has delivered stellar performance and a correction probably is a buying opportunity.

What about Zee, ADAG?

In all of these story-telling stocks, one needs to wait. If the deal happens, it is good for the promoters and investors in those companies, but to buy on hope of a deal is not right. I am not doubting the intentions of the promoters of Zee or ADAG. All of them have gone on record multiple times in the last few months and have put their businesses on the block in case of Zee, including their flagship company or Zee Entertainment. Even ADAG has repeatedly talked about stake sales in general insurance business and mutual fund business which is listed --Reliance Nippon Asset Management.

The point is even if they backdoor negotiations are happening, the market certainly is getting impatient, like in case of DHFL. One of the stocks which probably you have missed out is Yes Bank which has also been doing the rounds the last couple of weeks since their disastrous fourth quarter results. A lot of them are already desperate and the stock prices seems to be suggesting that. My suggestion is just stay away for the moment and let the dust settle.

Do you have any top picks within the midcap basket?

As far as the picks are concerned, they do not really change. I continue to be positive on the two-wheeler space. For example, Bajaj Auto and Hero selectively on private banks and that is where Kotak Bank and HDFC Bank figure to a certain extent, may be a Bandhan too.

The other space is city gas distribution companies. Mahanagar Gas and Gujarat Gas had fairly good results although there was a little disappointment on volumes. But there was no real complaints on the earnings. That is the third space extension of auto in terms of auto ancillaries. I continue to remain positive on some of the companies like Swaraj Engines or a JK Tyres.