Long-term, look for safe haven in these 3 pockets: Sudip Bandyopadhyay

Sudip Bandyopadhyay, Group Chairman, Inditrade Capital, says for long-term investments, the power sector, including NTPC, PFC, and REC, is promising. Opportunities in defence electronics and construction sectors, particularly in cement, are also notable due to increased public spending. Selectivity is key, and current market dips present good buying opportunities.

Was this a delayed reaction to Friday's US market weakness or just lightening up ahead of the tariff day?
Sudip Bandyopadhyay: It is a combination of both. Definitely the 2nd April tariff was looming large over everybody's psychology and reaction or action. Too much uncertainty and too many statements are coming out of the US. It is very difficult to try to gauge what is going to happen. So, everybody wants to go light into the event and that is causing this selloff. It is a broad sell off. It is not any stock or counter specific. Yes, some sectors have gone down more than others, but by and large, the selloff is across the board.

Are there any pockets that you think could be a safe haven at this point in time in this kind of declining volatile market?
Sudip Bandyopadhyay: If you are looking for a couple of days or a week, I do not think so because uncertainty and volatility is too much. But if somebody is looking at the long term, our views remain consistent. We like the power sector. So, NTPC, PFC, REC, the entire ecosystem of the power sector does look good to us from a long-term point of view. We like Bharat Electronics and defence electronics plays. We like some of the opportunities in construction, infrastructure, like in cement, where we believe the demand has picked up.

There is a lot of public spending happening and cement should start seeing good days ahead. So, yes, there are pockets, one should be extremely selective, but probably these dips are a good opportunity for buying stocks for the long term.

It is good to buy stocks in the long term and also quality good stocks. That would be the caveat, isn’t it?
Sudip Bandyopadhyay: Absolutely. That is exactly how one should behave. So many good stocks are correcting because of the prevailing uncertainty. So, if somebody is trying to build a portfolio for the long term, it is a great opportunity. It is not that they should put all the money to work today itself, but yes, they should start putting money in instead of waiting any further. One does not know what is going to happen, how the global markets, Indian markets are going to react after the tariffs are announced.

We will probably react on April 3rd morning when the market opens here. So, yes, uncertainty is there but one should start putting money to work. A lot of good largecap companies are available. Good midcap companies are available at attractive valuation and if you compare these values with, say, in September 24 valuations, they are comparatively cheap and attractive from a long-term portfolio point of view.

What is your view on the telecom space? Vodafone Idea is the stock of the day where the government has gone ahead and converted the outstanding spectrum dues into equity by which now the government will be holding approximately 49% stake in Vodafone Idea. Do you think that this will change a lot for Vodafone Idea? How are things going for this company?
Sudip Bandyopadhyay: Like a band-aid. You have a problem and you put a band-aid on it. It pushes the problem to a later date. Definitely, it helps in the short term because the problem was very big and the government converting the debt into equity has definitely given them some relief. There is absolutely no doubt about it but does it mean that Vodafone Idea is out of the danger and back in good health and things will be good from here on? The answer is definitely no. There is a long way to go. The operational challenges for Vodafone Idea are huge. They are losing customers continuously and that needs to stop first before anything else can really be said about Vodafone Idea.

I have been maintaining this view for the last one year that till the time they stop the bleeding of the customers, any amount of fundraising will not help. Now, of course, this conversion into equity gives them an opportunity to borrow money from banks, put some money in the capital expenditure to ensure that there is a 5G rollout in metros like Mumbai which definitely does help. But the final objective has to be stopping the exodus of customers, unless that happens, the future does look bleak.

Long-term also, unless Vodafone Idea can improve its earnings by about 50%, the question of them servicing the future liabilities also is going to be extremely difficult at this stage. So, I am not sure what is going to happen to Vodafone Idea. This is a temporary relief, but long-term definitely I would not advise anybody to buy. Well, traders can keep buying and selling and enjoying the volatility there. If somebody has to play the Indian telecom sector, Bharti Airtel is the place to go to. The cash flows are improving, the major capex is behind them, revenues are improving, also if somebody wants to be a little more aggressive, they can go and buy Reliance as well. It has got multiple other businesses but they have a telecom business as well and value unlocking at some point of time will happen. So, I would not recommend a long-term investor to buy Vodafone Idea at this stage.

Is the call same for Indus Towers?
Sudip Bandyopadhyay: Indus Towers is good. The government is very clear that they do not want to create a duopoly situation in the telecom space and that is good news for Indus Towers. But the question is the tower expansions will slow down going forward because 5G roll out for Airtel to a great extent is over. So, I am not sure of the pace of growth of revenue of Indus Tower in the near future. We will have to see when 6G comes or other developments come into play, but as things stand today, it is a good buy but not for a long term.

What is your view on IT space? How should one gauge this sector given that at one point, we thought things are going to get only better given the change in regime in the United States, but from there on, the entire outlook for the US economy has deteriorated and a lot of economists are talking about recession now.
Sudip Bandyopadhyay: You are right. This pretty much explains what is happening to it. If the US is getting into a recession or there is a definite slowdown in the US, obviously IT budgets will be cut, people will hold back spending. Maybe some existing projects will be put on hold. None of this is good news for Indian IT, which derives 50% plus income from North America particularly US. Under these circumstances it is pretty uncertain at this stage how things will settle down in the US and it is better to wait and watch rather than grab some of the IT stocks.

Yes, they have corrected and they probably will correct further, but there’s no need to rush into these stocks. Some of these companies, particularly largecap IT companies are fundamentally good companies, and are doing all the right things; but if the US slows down, if there is a recession or massive inflation which is being suspected now, things cannot be good for Indian IT.

How do you map the moves within the industrials pack and what would you still like within that?
Sudip Bandyopadhyay: L&T is a great buy at current levels and look. All these corrections are giving a great opportunity to accumulate this quality stock. The recent order win from Qatar was a landmark one, the biggest win for them and one has to remember that the margin profile of L&T is improving. All these international orders are about 10% plus margin whereas the existing book had about 8% margin. So, the overall margin profile of L&T is changing and it is improving. This is definitely good news for L&T. You mentioned that they started winning defence orders as well, and the subsidiaries also are performing well.

Of course, there are some question marks on its IT subsidiaries because of US developments and remember LTIMindtree has a significant chunk of their business coming from the US. So, there are some uncertainties on their IT subsidiary but fundamentally Larsen & Toubro’s core business is very strong and at current level definitely worth a buy.

In defence, I like Bharat Electronics (BEL). It is a fantastic company. They are doing all the right things. The order book is fabulous and they cater to the Air Force, Army, and Navy, all three branches of armed forces. The export opportunity is emerging. They have ventured into ancillary segments like electronics for metro rails and that is also a very promising segment and performance has always been good. They have been beating market expectations quarter on quarter. At current level, it is definitely a good buy from a long-term perspective.