The markets put on a show of resilience today. Traders were unruffled by the disturbing inflation figure and the indices surged ahead on strong global cues. The Nifty closed at 5,228 up 62 points, while the Sensex shut shop at 17,600 up 313 points.

Deven Choksey of KR Choksey Securities said the current rally is backed by corporate earnings growth. Choksey stated that the Nifty may have some amount of profit booking at around 5,350 levels or 5,400 levels and at 18,000-18,300 levels for the Sensex.

Excerpts from CNBC-TV18’s exclusive interview with Deven Choksey:

Q: Is this rally looking like it has more legs?

A: This particular rally is backed by corporate earnings growth. Most of the people in the market have been skeptical about earnings growth continuing in FY09. The company’s earning direction says that earning growth could well be continuing and that is the confidence I see in the market at this point of time, which is getting reflected into prices.

Along with that, those who have been sitting on the fence have resumed buying into the market. At the same time, the confidence is reviving back. So, put together we are seeing the market coming back to a kind of a respectable level from a de-rated performance to a re-rating.

The important aspect is earning and most importantly the confidence of the investors. If this particular quarter shows the performance continuing and auto numbers are just a reflection of it, the numbers in month of April are suggesting that growth is going to continue. So, such kind of upsides in some sectors would probably mean that growth in the market will be continuing and there may be profit booking at some levels. But the market should be consolidating and looking positive thereafter. 

Q: Where do you think this upmove will take us because a lot of people are talking about technical targets like 5,400 next? Are you getting the sense there might be more strength in this pullback that we have seen in the past fortnight or so?

A: No, that will be too early to talk it out. We will have to see whether the market sustains and has some amount of profit booking at the current level and then moves up. The Nifty, at around 5,350 levels or 5,400 levels, may have some amount of profit booking coming in or at 18,000-18,300 levels for the Sensex. It may come down a bit and then probably go up. We may see some amount of buying action coming in after the dividend discipline in the hands of investors and the corporate promoters that would stabilize the market. But going up all the way to 6,400 would definitely take some time in my viewpoint.  

Q: Would you enter autos and banks at current levels? Are you still confident that everything is not priced in?

A: Let’s look at the April numbers and then take a call. According to me, the April number is largely out of two reasons: one is the excise cut and the impact on the prices. Most of the dealers and consumers got wind of the announcement that some companies may be increasing the prices of autos. So, to a greater extent, even the rate of interest is not coming down. Most of the consumers have taken the decision in favour of buying the vehicles. In April, unusually, the numbers have been higher.

In my viewpoint, we will have to wait and see whether in the month of May and June this kind of growth sustains. If it does sustain, then auto would be a clear buy. But one would look at the valuation first before one would like to get into a company like Maruti or Tata Motors. If they are looking attractive at the current level with a forward price to earnings (PE) of around 12-12.5, they may be interestingly placed. Even if one has to buy at least three-months in advance or six-months in advance, they will probably have a return of around 25-30% at the end of the year. So, I would say that selectively one should stay invested in auto and if one has not bought one may buy at lower levels. If this number sustains, it is all the more positive for this sector.        

Q: We have seen a fairly decent performance coming in from Reliance Energy and Jaiprakash Associates. Are there any buys in that space for you?

A: With respect to the generation companies, if one wants to buy, then the choice cannot be different than NTPC to begin with and then Tata Power thereafter. Largely, the two companies have the largest capacities so far. So, they would probably be the first winners of this particular thing.

Reliance Energy (REL) is largely driven on the project business now. I would like to stay with the project business focus on this company, which is expected to be better in FY09 as we calculate it.          

Q: The pocket of rate sensitives have actually started moving over the past few days. Are you beginning to get a better sense of real estate now?

A: In real estate, buyers have been postponing their decision more because people have been apprehensive about the entire price sustaining. Most of the people were saying that the price may not sustain. That is the reason for which the buyers were not coming forward.

If I have to refer to the news items, which have come today, it clearly says that most of the developers are now restraining from going down as far as prices are concerned, which probably should induce the buyer to come forward and buy.

In my viewpoint, real estate is a space from a valuation point of view, at least in some of the companies I find they are extremely attractively placed particularly ones like DLF, Unitech and players who are definitely below 15 price to earnings (PE) quoting on a forward basis. The space is looking attractive from the point of view of growth continuing year-after-year. That is where I am very confident that India is a kind of country where the demand for the properties going forward would be high-both residential as well as commercial.

This space cannot be neglected and at lower levels it should be bought. At current levels, according to me it’s a good level to buy because the perception of price is going down is not found true. So, we may see stable prices in real estate and maybe stock prices should also stabilize and then go up thereafter.           

Q: Do you track any of the offshore companies? What did you make of the numbers?

A: In case of Great Offshore, the cost is on the higher side. Most of the companies are finding it difficult to manage this particular aspect of cost. One will have to wait to actually see how cost is getting leveraged and the contract prices getting reflected accordingly. That could in the first quarter and thereafter we will get slightly better idea of the current year going forward.

Disclosure:

It is safe to assume that my clients and I may have an interest in the stocks/sectors discussed.