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You are here : Moneycontrol » News » MARKET OUTLOOK

More pain for mkts in short-term: Avendus Adv

Published on Tue, Jun 24, 2008 at 09:36 , Updated at Tue, Jun 24, 2008 at 17:22
Source : CNBC-TV18

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Girish Nadkarni of Avendus Advisors sees a little more pain in the markets in the short-term. According to him, valuations seem depressed as far as large number of sectors are concerned.

He said, "In terms of risk return analysis, in the medium term we are fine. Whatever risk we will take, we will not get returns for it in the short term."

 

Excerpts from CNBC-TV18’s exclusive interview with Girish Nadkarni:

 

Q: Are we somewhere close to the bottom or do you see more pain for this market?

 

A: In the short-term one can expect little more pain, although in terms of valuations we should be somewhere close to the bottom. There will be sectors impacted by interest rates, and growth is impacted by inflation, which will probably not go up in a hurry. Valuations seem fairly depressed in many sectors. In terms of risk return analysis, for the risk one is taking in the market now, the returns will far outweigh in the medium-term at least. So, while there maybe some pain in the short-term, in the medium-term we are fine.     

 

Q: It is a 52-week low for many of these key PSU bank names; how would you approach banking as a space now?

 

A: Banking will be under pressure right now because it is a direct impact of an increase in interest rates, which is expected on account of the inflation numbers. So, sentiment towards banking stocks may not improve immediately. In terms of macro economic measures, there are very few measures that the policy makers have when inflation crosses double-digit and interest rates is one of the key parameters. It may not happen right now, but it would certainly look to be high or moving up in the near future. Therefore, increasing interest rates directly impacts banks. It may not be the best sector to invest in when such a situation is there currently.

 

Q: How would you position yourself in infrastructure space; the way some of these L&T, Punj Lloyd have collapsed in the last couple of weeks. Would you buy here or stay away?

 

A: It’s a great time to buy these stocks. The long-term story of infrastructure in India is intact. There will be pressure because with inflation, savings rate in general tends to go down and investment gets impacted, as also there will be private sector crowding out. But, these are essentially temporary in nature. From a long-term perspective, India needs investment in infrastructure and it remains a very attractive destination for foreign as well as domestic capital for investments in infrastructure. We believe that this opportunity, which has presented itself in terms of stocks going to 30-40% of their peak level, is a great time for people to invest in infrastructure. 

 

Q: Any thoughts on the KSK Energy Initial Public Offering (IPO). Qualified Institutional Buyers (QIB) appetite is okay but Net Interest Income (NII), retail is abysmally low and I believe most of the bids have actually come in at the lower end of the band?

 

A: That’s right. The capital market will take some time to revive. Based on the strong QIB interest; the issue will definitely go through, looks like it. However in terms of appetite for primary paper it is not forthcoming. We should not see any significant issues in the next two to three months unless any issue is under-priced and people begin money on the primary markets, which will probably signal a trend towards the revival in the primary markets. So, at this stage for a couple of months at least primary market seems quiet. KSK Energy will go through because of the strong QIB interest.         

 

Q: What about telecom, how would you approach that space now?

 

A: It is a great defensive bet in this market. Demand for telecom services is increasing, there is infrastructure spending on ancillary businesses, which are related to telecom sector. It is probably a very safe sector to invest in and does not have any impact on inflation. Other macro economic indicator also does not have a significant impact, net subscribers addition numbers are very good. So, it is a fairly good sector to invest as a defensive for the short-sector.

 

Q: While the FII sentiment is well documented and quite evident. How are the Domestic Institutional Investors (DII) feeling about the market? Are you sensing a bit of edginess the way the first six months of the year have shaped up?

 

A: The general sentiment remains fairly subdued whether it is for the Foreign Institutional Investor (FII) or the domestic institutions. There are not too many people who want to take a contrarian call because of the overall uncertainty that is prevailing and one would expect that some certainty would prevail for sometime in the short-term. So, the domestic institutions will not be any different from the foreign institution in terms of their outlook in the market.   

 

Q: Along with earnings expectations any concerns about this almost serial dilution that might begin even for the big guys or the midcap guys whether it’s via rights (issue) or any other medium?

 

A: That is not so much of a concern; a lot of companies have actually raised equity in the last two years. The corporate earnings have been good up to now. So, there are enough internal accruals for these companies to be able to maintain growth. Sectors which need a lot of capital investment are the sectors where possibly dilution will happen. Infrastructure is definitely one of them; real estate is the other sector, which will need capital for growth. Companies within those sectors may have some impact on dilution but in the broader market dilution is not a major play. Companies like Hindalco, which have done large acquisitions, or for example Tata Steel, which have done a global acquisition, would need capital and are going through the rights (issue) route. But other companies are not impacted much right now.    

 

Disclosure:

 

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

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