After the DMK pulled out of the UPA government yesterday, Nischal Maheshwari of Edelweiss sees the possibility of mid-term polls that could take the market below 5500.
Maheshwari believes pharma and IT sectors are safe buys. With the rupee likely to depreciate further, Maheshwari believes both these sectors will outperform.
"Good management, free cash flows once again are going to dominate the market," adds Maheshwari in an interview to CNBC-TV18. On the deep correction seen in Manappuram Finance, Maheshwari says the fact that the management continued to give wrong guidance to the street was the reason behind its fall.
Below is the edited transcript of Maheshwari’s interview to CNBC-TV18.
Q: Do you have a sell on Manappuram?
A: I think the industry has been taking too much an aggressive stance especially on the loan-to- value (LTV) front. That is what has been the nemesis for them and they are upping the price for that. I am surprised that they had to take this kind of a write off. In Manappuram’s case, on a book of around Rs 12,000 crore, the default is almost around Rs 2,000 crore. This is means almost 17-18 percent of their book is defaulted. Fortunately, for them, there is collateral in terms of gold, but then they have lost a lot of money. Obviously, the surprising part was the fact that the management kept on giving wrong guidance to the street. That is reason behind the stock being so dramatically down from Rs 40 a month back.
Q: Your views on Muthoot Finance?
A: The industry dynamics are the same though the management has not come out with any new guidance on that. However, on falling gold price regime, there will be a problem with the whole industry as such.
Q: What is the call on the market with political uncertainty? There is a big question mark about the economic reform from the United Progressive Alliance (UPA) government, the Cyprus uncertainty? From these levels of 5,700, what is the call that you are taking?
A: The market is once again set for political uncertainty and that is the problem people are looking at. People were saying that growth is going to come back and Finance Minister, P Chidambaram has given a fair idea to the street that there should be recovery. That is now going to get delayed if politics starts playing a very central role and politics is going to start playing a central role now. That is where market is taking a hit and there is a fair chance of it going to 5,500, which is a Nifty 200-day support. Thereafter, once again we will have to relook whether we are in for a downhaul from there also.
Q: Are you a buyer on dips? Or do you think that perhaps until the elections are over, that is for the next 14 months, the market is going to linger in a range. So there is no real hurry to buy.
A: Yes, I think there is broad range with a downside of 5500-5600 and an upside of 6000-6100 which it touched in month of January. I think that's a broad range which the market is going to move around till we have any major news coming in.
If there is a mid-term poll, there is fair chance of that happening given that DMK has withdrawn the support from the government. Until and unless the resolution is passed in the parliament and DMK comes back, I think government is in a delicate situation. So, if there is a possibility of mid term election, one may possibly see 5500 getting broken for the time being. However, an early poll would be good for the market and the country.