Invest in construction, infra, engg space: LKP Shares

S Ranganathan, Head-Research of LKP Shares feels that people should invest in sectors such as construction, infrastructure space and engineering because their second quarter numbers have seen quite a good growth in earnings. He said companies such as Crompton Greaves, Shanti Gears, and in the construction and the infrastructure space, L&T, etc. are some of the stocks where one can start buying in a staggered manner.

Here is a verbatim transcript of the exclusive interview with S Ranganathan on CNBC-TV18. Also watch the accompanying video.

Q: What are you advising the clients to do at this point in time and if you looking at buying, which are the sectors you are targeting?

A: We are advising our clients to start buying industries which are insulated by what is happening globally. This would include sectors like construction, infrastructure space and engineering because when we look at some of these sectors particularly the second quarter numbers, we have seen the earnings growth in some of the engineering companies has been quite good. So we particularly like some of the companies such as Crompton Greaves, Shanti Gears, and in the construction and the infrastructure space, L&T, etc. are some of the stocks where one can start buying in a staggered manner.

Q: It’s only the auto industry and commercial vehicles that have seen short-fall or contraction of production, or do you think there is a widespread contraction in a lot of SME’s? Would you touch midcaps at all at this time?

A: For this fiscal there is a consensus that the Sensex earnings would be around 7%. This is the kind of growth we have seen in 2001–02 and at that time the Sensex was at 3,500 and we are now at 9,000. So, if we are looking at this kind of a Sensex growth the value lies more outside of Sensex and this is exactly what we are trying to advice clients because among the Sensex companies we still have valuations below fairly expensive relative to the kind of earnings growth these companies can post, and especially, when one considers the fact of what is happening globally. So to put things in perspective, it is not the commercial vehicles or one particular aspect. We are seeing contraction across many industries and particularly in the SME sector also but having said that we do feel that business which are not leveraged or which already had their capex and have already raised money, we have several companies just to name a few like Indotech Transformers, etc., which are throwing free cash and they are just not leveraged and are virtually debt free. Even at the multinational space one has enormous amount of cash sitting out on the books and in most of cases they are almost equal to the market price of the stocks.

Q: Would there be any value picks on the private banking space?

A: There are clear worries on the non performing assets, on deterioration and asset qualities and it is more pronounced and wide spread in the private banking space. What we feel about these spaces is that companies like Punjab National Bank or Bank of India offer good values at this point in time especially when one looks at their portfolios and look at the way they are exposed to the overall scheme of things. So we are quite optimistic on some of these public sector banks.