The pressure is more technical in nature and could lead to a selloff in the market, but by and large, the margin funding exposure in the market is not so alarming that it would lead to a major crack in the market, said Hemang Jani, Senior Vice President, Sharekhan, in an interview with ETNOW.Edited excerpts:
It seems the stock market unwinding is not fundamental in nature but technical. But is this technical unwinding leading to serious price destruction?
I agree with the assessment that there are certain groups and companies which have a higher component of pledged shares and because of the NBFC crisis, that came out in September and October. Post that, things have not really stabilised in terms of debt market activity and the kind of selective approach that most of the people have at this point of time. This is leading to some kind of nervousness and more volatility in certain names. The pressure on the part of lender to liquidate the stock increases.
People were waiting for certain deals like Zee and Dewan Housing to get closed. It is taking a while for these deals to fructify and that is adding to the uncertainty and volatility in the market.
For certain groups and stocks, the pressure is more technical in nature and could lead to a selloff in the market, but by and large, the margin funding exposure in the market is not so alarming that it would lead to a major crack in the market.
Would you worry about the prospects of Reliance Industries and the core business shrinking as also the huge debt on the books?
After a very strong performance in the last two years or, there is a bit of a slowdown in the core — the petchem and the oil and gas business — which is visible in its performance of the last two or three quarters. The company has been trying to monetise some of the assets — be it Rel Jio or trying to bring in investor in the core business. So effort is on to rebalance the debt. The gross debt is very high at about Rs 8.5 lakh crore and the net debt is somewhere around Rs 3.5 lakh crore.
Depending on how this new investor comes in Rel Jio or the main business, there is going to be a little bit of movement, but purely from a core business and the numbers perspective, things are not looking great for Reliance. There might be some more weakness depending upon how the broader market moves.
What’s your view on Zee? The promoter is trying to sell 20% stake to get rid of the pledge and it does not kill the value of the franchise.
The franchise that Zee has created is extremely good and it has been growing and the way they have actually maintained the market share and the ad revenue and invested in the regional channels is shaping up well. The company is sitting on a debt of about Rs 12,000-13,000 crore and also need to invest in digital. They are not being able to find and close the deal at a good valuation and that is creating a bit of a uncertainty in the market about whether the pledged shares would be sold or if there is going to be some panic selloff.
It is a temporary technical issue but sometimes, these technical issues can lead to major volatility in the market and that could unnerve a lot of investors. Zee is going through turbulent times. I am not sure how soon the deal will fructify but if there is a meaningful correction in Zee, it will be a more interesting buy from an investment perspective.
Titan has done good from FY19 jewellery guidance point, but the sheen seems to be missing from the bottom. The consumption slowdown does not seem to be prevalent when it came to jewellery buying?
Titan performance is a standout in a market environment where consumption is slowing down and most of the companies — whether staple or discretionary consumption are struggling to show any kind of meaningful growth. Here is a company which is showing a volume growth of 15%, there is a market share gain and a very decent set of margins and a good amount of guidance. There are very few companies in the current environment that you can be confident about the earnings visibility with a decent amount of volume growth. There might be a little bit of a disappointment on the net profit front, but I do not think people are going to be worried about it because it looks like a secular story.
There might be a bit of a correction because of the market volatility but these are companies that you should be accumulating in this particular volatility. Post the numbers, we have actually upgraded our earnings estimates for next year and we have put a price target of Rs 1,260 which can give a decent upside from current levels.
For Bharti, the right issue has seen a large commitment from current shareholders and some of their big institutional investors like Singtel. The $4.5 billion if that comes into Bharti along with the promised deleveraging of Africa business, means the dented balance sheet suddenly looks nice and pretty?
After pain of two years, we are almost near a revival in EBITDA and the overall operating environment. The kind of pain that we have seen and the kind of cost control measures that they have taken and more importantly, they managed to repay a large part of the debt which is the biggest pain point for a large number of investors, should bode well for the company and the balance sheet.
Once we see Rel Jio taking a price hike, which would happen eventually — in three months or six months — and at that time, some of these incumbent players would be in an extremely good position. Timing a revival and particularly timing the stock price movement is going to be extremely difficult but for somebody who has a 1-2-year view, Bharti offers a great risk return.