Tech, banking stks to drive short-term rally: Envision Cap

Q: Friday usually has the worst kind of data for the market; inflation, Index of Industrial Production (IIP). How are you feeling about the way the macros have been shaping up?

A: There is little to hope and look forward in terms of macro data. We do not see inflation at a single digit number in the near future. All data relating to IIP and some of the other growth related parameters are going to be in the single digit numbers broadly between 6-7%. So we are in a challenging environment as far as macro data is concerned. Even oil prices refuse to abate. As long as that trend continues, the clouds will continue to be there over the macro environment.

It’s quite possible that the Q1 numbers would broadly be inline with expectations. We may see the impact of the deteriorating macro environment on the corporate earnings during the Q2 and Q3 of this financial year.

Q: Amongst the whole rate sensitive pack infrastructure has started seeing some buying. Do you think value has started emerging there?

A: Yes; I think the sector has come down to significantly battered down levels. It’s a segment that is significantly oversold. But one might see some kind of a bottoming out process in the sector in the next couple of quarters. There maybe a downside from the current levels in these stocks. The management of some of these companies have not been transparent, they may not have followed the best of management practices.

These are some of the issues, which are dogging the sector. Till we see bond yields coming out and inflation peaking out and till there is enough liquidity available for end customers to pickup again the momentum in their project. The sector will continue to be under perform for another 6-12 months.

This sector was significantly over owned between the period of July to December last year. The sector that did extremely well was infrastructure. There were a lot of capital issuances happening and now there is a lot of unwinding. That’s a process, which is not completely over. There is long-term value that seems to be emerging from the sector but I am not too sure whether the sector is completely out of the woods.  

Q: How are you approaching this upmove if there is a little bit more left out here, would it be dangerous to get lulled into a sense of well being after a few percentage points on the Nifty or would you sell this rally?

A: I don’t see this rally going away to significant highs from the current levels. At best you would see another 4-5% upmove from the current levels. That is going to be primarily propelled good earnings numbers, which will come out. Technology started off and had a good start. There might be a few others, which might join the bandwagon in terms of earnings. But beyond that it is going to be very difficult with a lot of global as well as local factors coming into play.

Disclosures:

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