Find safety picks in cement and metal space: PINC

Sandeep Shenoy of Pinc Research feels that from a one-year view point, a fair value can be found in asset-heavy companies, which are having good scale-up potential. And those which have unfolded a capex plan like Shree Cement or in metal space, something like a Sterlite and Hindalco, he added. "They offer a huge amount of a safety for you."

On the financial services front Shenoy is bullish onPower Finance Corporation and IDBI which offer a fair amount of value for money for investors at the current juncture. According to him, in the IT sector the smaller stocks such as Mastek or NIIT are decent remunerative stocks for people to enter at a current level.

Excerpts from CNBC-TV18’s exclusive interview with Sandeep Shenoy:

Q: What do you make of this, the Nifty is finding it difficult even to stay above 4,500? It managed it somehow. What kind of selling pressure are you expecting?

A: Few days back we are talking about a bounceback, which could probably have propelled the markets to higher levels. The theory or that story has come undone and probably we could see the previous bottom being tested once again.

As we have been always saying that by all possibilities there is high likelihood that the quantum correction of the Sensex maybe over but the time correction is still not through. So we are going to have a painful time till September at least. So we have to just grin and bear it, there is nothing we can do about it.

Q: In a situation like this what would you do either with your prop book or what would your advice be, to investors? Would you even short the markets, would you even sale off and book profit where you are?

A: Unfortunately, there are very few opportunities to short the market at the current level but you are damned if you buy or not, so this is a kind of a situation where markets are in. So extended sideways movement probably could ensure that markets remain flat. But the portfolios could suffer some kind of erosion. So this is one aspect of the market that people have to grapple with and come to terms with. So we are advising people only going for deep value stocks or those stocks where huge amount of corrections have taken place but fundamentals have not got battered at all. So value stocks are there and growth stocks are there at value prices. But those are the stocks, which one should go in for. One should not try to trade in the market, it is going to be very painful for the investor.

Q: You spoke about value stocks and in fact a lot of analysts on our show are saying that a lot of stocks across the largecap and midcap space have fair bit of fair value. But currently we will just get these stocks at lower levels. So why put in money even though valuations are compelling are attractive, what is themarket mood currently?

A: There is a huge amount of pessimism creeping in and when there is all-around pessimism probably the preliminary signs of bottoming out in the market would have been there. But that is a question, which everybody faces if there is a value stock and if it is going to be available to you at a cheaper rate in the next few days why going for it? But I think picking the market in that kind of a situation, one has to be God or extremely lucky and I think a common investor would better use the judgement. One should make an entry at one’s preferred fair value and even if there is a correction from that level one should not get perturbed.

Q: For the investor what is the stock list that you would advise, where do you see mouthwatering values?

A: The mouthwatering values aren’t there exactly right now. From a one-year view point, we feel a fair value can be found in asset-heavy companies, which are having good scale-up potential. And those which have unfolded a capex plan like Shree Cement or in metal space, something like a Sterlite and Hindalco. I think they offer a huge amount of a safety for you.

On the financial services front, I think something like a Power Finance Corporation you cannot wish away such company because of a crack in their stock. So, companies like PFC or probably IDBI offer a fair amount of value for money for you at a current juncture. So I think pockets of value are definitely there but we should not try to play god by saying that they will not erode from hereon by another 10%-15%. There is a possibility but it is going to be some kind of a scrapping at the bottom of the barrel at that level. So if you have a conviction you should go in for this stock.

Q: Anything you like from the defensive space?

A: I do not think there is anything going to be defensive other than some of these financial services stocks. Because all the capital goods and the high visibility companies were having a very high valuation metrics, which still has not got eroded so other than financial services. I would not probably recommend any other sector as a defensive right now at this current juncture.

Q: What would you do with a stock like Reliance Industries?

A: Considering the situation and positioning of the company and its preemptive or can say preeminent role in the economy of India. This is one stock where most of the savage shorting could have taken place and that is where common investor would get a strong entry. Or one can say very remunerative entry level on a longer-term basis because all its USD 3-4 surplus cashflows cannot be wished away. The cashflows are there, the company size is there and unfolding of capex is also not impaired. So I guess it is another value stock but on a different level.

Q: Any such remunerative buys that you can see in the midcap space?

A: Some of the smaller IT stocks such as Mastek or NIIT are definitely pretty decent remunerative stocks for people to enter at a current level. Risks are capped, most of these companies have pretty decent amount of cash in their balancesheet. The worst of the phase is over and the newsflow from US as regard spending on IT is also becoming slowly encouraging. It is not extremely buoyant but it is encouraging and it is not depressing as what it was in January. So I guess it makes this kind of companies a good buy at current levels.

Disclosures: