Mkts waiting for +ve earning nos: Pranav Sec

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Rajesh Jain of Pranav Securities has a view that markets at this point in time is looking for few pointers like corporate earnings to make the next move. He adds that an enormous amount of positive news is needed in the numbers for the markets to scale past the 5,100 mark on current evidence and broadly, one should take this 600-point range as the best range for the month.

 

Excerpts from the exclusive interview with Rajesh Jain:

 

Q: Flip-flopping for the last few days, do you have any sense of direction or where we are going as we head into earnings?

 

A: As we head into earnings, there are few pointers that most of us in the markets are looking out for. The first is the extent of the damage that is hedging exposures, that corporates may have undertaken through banks and their impact on the bottomline for the last quarter, and for the quarters going forward and that's one pointer that people are looking for. But more important than that is what is the body language from the company, in terms of profit and the bottomline guidances going forward.

 

We should remember that not many Indian corporates particularly in the old economy give out guidances but the body language and indications, of what to expect over the next 3-4 quarters in the light of the new interest rate scenario, the inflation and the global picture, is the other aspect that people will be watching out for. .

 

Based on these three pointers, you might be able to will re-jig all the value buyers into action because even though there is a broad consensus emerging that most of the negative news is in and stocks could be available at fairly good levels. The jury is till out on weather there could be a derating taking place in the overall market. We have seen derating happen across sectors like real estate and capital goods but not across the entire spectrum. So is derating going to be the result of the Quarter 4 numbers and after that if you do not get negative signals then the value buyers would start buying.

 

 I think that is the one signal which could get the first flurry of buying in. However I would still maintain that a sustained rally would require that there is a positive confirmation on monsoon for this year because once that happens then all the buyers would come back in throngs. But until then you are going to see the kind of flip- flops that we have been witnessing. A rally never fails to see selling and on a very sharp decline you do find the usual buyers looking for value.  

 

 

Q: What have you done of the international court ruling for Tata Communications, they don't seem to be any indication of damages, but the stock has got hit very hard today?

 

A: This is one of my blind spots, the VSNL stock; you will have to excuse me on making a comment on that.

 

Q: What about Orchid, how have you read the developments on that?

 

A: That's a very interesting and exciting development; Orchid has strengths in the generic space and has been trying to adapt an aggressive business plan and we were all aware of the aggressive equity placements that the promoters were undertaking and because of events happened, there was tremendous buying opportunity for an aggressive acquirer and Ranbaxy also has great global plans and Orchid seems to fit into the scheme of things as far as Ranbaxy is concerned. 

 

 It would be interesting to see how hostile efforts such as this goes and what  the net result of that will be because in the pharmaceutical's space, we have not really seen expectation from the stock market point of view and should a consolidation in the sector begin even through a hostile take over bid by say a Ranbaxy or Orchid, it opens up very exciting possibilities at a time and the only reason we are looking at the pharmaceutical space as a defensive in time such as now is because it is an extremely positive move from a business model perspective for Ranbaxy and Orchid would not really loose except from a promoters point of view, and for the sector, it's the way to go forward.

 

Q: Where do you stand on the metal story, SAIL has lost quite a bit of ground all the way down to Rs 157, TISCO has corrected quite a bit, would you buy it or these stocks need to correct further given the news flow of the last few days?

 

A: You have a precedent and a parallel on this, the cement sector is currently dealing at an impact of an expected price regulations by the government and the dip in the ticker which has happened as a result of this tweaking of value, offers a good entry point because the steel story for India is very robust, both from a fundamental volumes point of view. There is a whole host of consolidation re-alignment opportunity also available for investors within this space, so I would use this opportunity to buy into the steel space and like I said, you have a precedent in cement last year, look at the gains you posted mid year after the price regulation clouds have started out.

 

Q: What kind of a broad range do you see the Index in till a lot of earning actually come in?

A: From the evidence that we have had so far after the closing of the March series, we are currently at the midpoint of 4,750-4,700 thereabout. So I would give it a range of about 4,450 on the absolute downside to 5,050 or even a 5,100 on the higher end of this spectrum. And you will need an enormous amount of positive news in the numbers for the markets to scale past the 5,100 mark on current evidence and broadly, one should take this 600-point range as the best range for the month.

 

 

Q: How have you reacted to the moves in BHEL and L&T over last few days, today is L&T's turn to fall and BHEL has been the leader in the Capital good's correction?

 

A: BHEL is trying to undo the excesses that were witnessed over the last 3-4 trading sessions, and some amount of value buying could be coming in there, but my personal view is that the entire capital goods space will have undergo and its in the process of undergoing a re-rating for the simple reason that if you have concerns on inflation and interest leading to a demand slowdown, capacity creation is not what most corporate strategists indulge in and that should result in slowing down of the growth in order books.

 I would also suspect that some of the orders existing would get cancelled or reduced and that is going to mar the entire outlook for this sector, you look at the input side, most of the inputs for the capital goods sector are seeing price increases as a result of which, there will be a margin squeeze and like I said, the order books are not likely to be growing very fast, the entire sector was the favorite of the stock markets in the first two months of this year and the quarter before that, so there is the over ownership factor and given the emerging scenario there would be a greater selling pressure rather than a buying appetite on practically all the capital good stocks, so despite the great infrastructure, power sector, and the intrinsic volume drivers, I don't think the capital goods sector is going to pick up a positive trend in the very near future, and moves, even though they are contrary today for L&T and BHEL they are stock specific but overall the sector should continue to witness pressure that essentially means that with every surge, there will be the inevitable selling as the over ownership corrects in line with the re-rating of the sector.   

Q: Would you buy Indiabulls securities at Rs 98?

 

A: I think you are getting an excellent play in the capital market and the broking space practically at the bottom end of the tickers, and we are all aware of the positions that Indiabulls has in the industry. And things can only improve from the level that we have attainted right now. I think given the expectation on a possible Security Transaction Tax (STT) tweaking by the government, the volume picture should also start looking better, and personally I believe that most of the negatives that can impact the valuations as well as the volumes are already there.

 

The markets are just awaiting few conformations on the corporate numbers and the outlook for the next year, as well as there this expectation that something positive could yet emerge on the STT. We are all-aware of how badly volumes will get hit, should arbitrages cease to be viable just because of the change in the STT treatment. I think somebody or something will be tweaked to help this huge volume contributed in the markets given there were PSU disinvestment plans that were there the government had and the fact that should the stock market should give you the kind of volumes that you require, than it doesn't augur too well for the entire capital raising exercise in the whole corporate India. So I think there are positives to be expected out there and you are getting Indiabulls practically at the bottom end of the valuations and it is one of the best players in this sector.

 

Q: What's the call on the pharmaceutical space and all that's happening in terms of M&A activity in this sector?

 

A: What Ranbaxy has in mind for Orchid opens up an interesting set of possibilities for the entire pharma space in the country. Currently this sector is seeing a revisitation of stock markets fancy simply because it happens to be a defensive at a time when the stock markets have brutally scathed by developments across the globe and within the country. The pharmaceutical space has a lot of fragmented players. The business models have for the large players become skewed towards R&D as well as the overseas marketing.

 

Both Ranbaxy and Orchid are in the same space and Ranbaxy's intentions of taking over Orchid would have a lot to do with the global extensions that Orchid was seeking. We could see similar extension of activities across this sector and particularly from a stock market point of view, it would make the entire space very exciting to invest in because apart from very mundane fundamental drivers and volumes that don't excite too much, there wasn't much to recommend the pharma space to investors and its only off late that we have seen Ranbaxy get past those Rs 350 mark and then stay above the Rs 400 mark.

 

So fundamental seem to be improving and M&A activities would really excite the investors much more. So I think pharma should be the space to watch.