Clipped from: https://economictimes.indiatimes.com/markets/expert-view/how-to-position-in-itc-siddhartha-khemka-answers/articleshow/80742924.cmsSECTIONSShould you be positive on ITC? Siddhartha Khemka answersLast Updated: Feb 08, 2021, 09:52 AM ISTSynopsis
Even if the numbers for the other segments improve, the numbers from ITC’s core segment will continue to be suppressed, says the MOFSL’s retail research head.
As the market has sharply moved up in the last four-five days, the focus could shift back to defensives like IT and pharma in the near term, says Siddhartha Khemka, Head of Retail Research, MOFSL.
On SBI & the PSU banks
State Bank of IndiaNSE -0.57 % (SBI) has put up a very strong performance. We believe the earnings normalisation cycle for SBI has begun. The uncertainty that was ushered in after the Covid-19 pandemic and the lockdown has reduced significantly and going forward we see healthy NII growth and a strong recovery in retail credit growth. Overall, things are looking pretty good for SBI.
The Indian economy, which was pushed into a slowdown because of a global pandemic followed by lockdown, has recovered from its lows, helped by the unprecedented global response from the governments as well as the central banks. We had been waiting for a recovery even before the pandemic started. The kind of steps that the government has taken and have also spelt out in the recent Budget will go a long way in sustaining growth for the next few years.
In the present circumstances, the corporate side of lending should do well. The government is clearly focussed on the performance of PSUs and plans to recapitalise some and has also talked in terms of privatisation of two PSU banks. For the first time, they are not saying disinvestment, they are using the term privatisation of two PSU banks. These steps will reinforce the market confidence in the PSU banks’ basket.
SBI is a torchbearer when it comes to PSU banks. We have always been positive on SBI, given the valuation comfort. Now with asset quality under control, growth is looking much better. Among the PSU banks, SBI should be the top performer.
OnZee EntertainmentNSE -1.82 %
Overall, Zee has reported strong numbers. Their EBITDA grew about 13% on a year-on-year basis, adjusted for the one time content syndication deal. However, what does have an impact on the market was that the margins were lower and the guidance that the company has given both in terms of growth as well as the margin, has been much lower than what the market would have preferred. This is impacting the overall sentiment for the stock.
Given the earlier runup, there could be further profit booking in the stock. We believe that while the revenue recovery has been encouraging, the high investment in content acquisition and the lower margins, especially in the movie production business, will remain an overhang. We maintain a neutral rating with a target price of Rs 265.
On Nifty50 constituents
Pharma as a sector has seen pretty good results. Some kind of consolidation has already happened within the pharma space. As the market has sharply moved up in the last four-five days, in the near term, the focus could shift back to some of these defensives like IT and pharma. The results are expected to be pretty strong for Divi’s.
Some of the companies like Neuland Labs have come out with strong numbers. The stock has corrected and has started recovering and we could see some positive momentum out there.
ITC is doing well now but in the long term, the stock has largely underperformed in the consumer space and it has got some interest after the Budget. The expectation from ITC is not that great. Overall, the cigarette volumes have improved sequentially but still it is down 7% on a year-on-year basis. However, there has been positive commentary from the management recently on the hotel business and the non-cigarette FMCG business and these could drive the overall earnings for ITC.
But even if the numbers for the other segments improve, the core segment will continue to have a suppressed number and hence we have a neutral rating. A trigger could be the demerger which is doing the rounds in the media. We are not sure it will happen but if something of that sort were to be announced, then look at ITC from the the results’ perspective.