Mar 14, 2013 06:49 PM IST | Source: CNBC-TV18

See rangebound session for another quarter: Amit Dalal

Amit Dalal of Tata Investment, say that he is of the view that the market will trade in a range bound session for at least a quarter. Currently, the market faces lot of domestic selling pressure and is lot dependent on FII flows.

Amit Dalal of Tata Investment is of the view that the market will trade rangebound for at least another quarter. Currently, the market is facing lot of domestic selling pressure and is heavily dependent on FII flows. 

Dalal doubts whether the market can touch a new high anytime soon, without the participation of banks and oil and gas sector.

Also read: FIIs confident of India Inc, CAD a worry: Reliance AMC

Below is the edited transcript of his interview to CNBC-TV18.

Q: What was your reaction to the inflation figure? Do you think RBI will cut rates on the March 19? Do you also believe that the monetary policy will play a limited role in any kind of initial stage recovery of this cycle and it needs to be more front-loaded from the government’s end in terms of reforms etc for any concrete growth to come through?

A: I think credit growth is muted due to problems in cost of funds and very poor capex cycle. Though, Index of Industrial Production (IIP) figures tend to be slightly better depending on which month they are produced for given the year-on-year (y-o-y) effect on them, but still we are far away from having a confident capex cycle ahead of us. On back of this, a rate cut of 0.25 percent will bolster margins for some companies or help banks to position their balance sheet better; limited impact of the RBI cut is expected soon.

Q: What is your view on today's trade where we saw lot of volatility and intraday reversal?

A: The global effect of buoyancy, which we see in the Western world, translates to Foreign Institutional Investor (FII) flows continuing in India. The problem is that domestic funds continue to remain net sellers. The redemption pressure is so high that at every point you see FII flows we see selling taking place. It is not a good technical position for this market to be in because if there are no flows for a week or 10 days it makes one very vulnerable.

Q: What is the trend that you are seeing in terms of a movement for the market now because many people believe that even the upper end of this range of about 6,100-6,200 might be a tall task with immediate headwinds that we have in terms of the macro data etc. Do you believe that we could overcome that hurdle and get to the upper end sooner rather than later?

A: I think the market will remain range bound for at least another quarter. I don’t think one will see anything substantial from quarterly numbers, which move us to a revaluation of the market or rerating of many large caps. Nothing much is happening on the ground level, which makes the market feel more confident about the battered down stocks which are present.    

As long as there is polarised valuation, wherein the FMCGs and the certain other stocks keep themselves at such high price-earnings (PE) ratios coupled with the risk that now the gradient of their growth is coming down and that in itself will make these stocks look more expensive in the coming quarter.

So, I don't think this market can touch a new high without the backing of some other banks or the oil and gas sector getting revalued by another 20 percent, which will not happen. I will be very sanguine to imagine that this range continues for some time to come.

Q: How are we correlated to the globe because the European markets are currently at four and half years high? Dow is also making consecutive highs. Do you think are we are linked to the developed market (DM) performance as oppose to an emerging market (EM) performance. Where would you place India in terms of the global equity space and the correlation that we are seeing?

A: The global allocation process is a decider of our movement and the process is in favour of equities so we may find enough flows to keep our markets buoyant. CLSA and Wood were extremely positive on India for a decade but now they are reducing their weightage on India compared to other EMs.  India has a long way to look at itself, as going to stand up in any rally. I think we are there right now because there is a general allocation towards equities.

Q: What is your view on Titan with stricter know your customer (KYC) norms that came out How do you expect consumption stories like Titan to pan out in FY14?

A: I can’t comment on Titan, but definitely the whole consumption story, which saw on a new canvas for the last two years, will not see the same growth coming next year. I think there is peaking in terms of growth rate of these companies and the profitability, which one expects when they are 40 times discounted, which was a case in Nestle, Lever and Titan.– that think will not pan out for another few years.

Traditionally, these were called defensive stocks and now they got revalued, moved up and gave exponential returns for the last few years. One will not see that going forward and therefore I would remain circumspect at these valuations for Titan or Lever.

Q: How would you approach some power finance companies? Today, we saw bit recovery but ever since the news of Punjab not participating in governments restructuring plan for the State Electricity Boards many companies saw quite a bit of pressure. Would you use this as an opportunity to buy into them or would you be cautious?

A: Valuations are definitely in favour of these companies. Many of them are at single digit earnings discounting. But their asset side is in trouble. Whether it is Punjab government or the whole country they have to solve the problem. One cannot see discoms becoming assets which are difficult on the books of lenders. Otherwise, the whole system will be in difficult situation. I would see this as an buy opportunity but one will have to patiently wait for the government in its own complexity to be able to solve this in a manner that will be acceptable to the lending system.

Q: We are expecting banking licenses to come out soon. What are your expectations, which is the most touted and which one would you possibly buy?

A: I would put my money into Mahindra and Bajaj in the listed space.

Q: We saw lot of buying for banks at lower levels. Many people have recommended that any dip, any exaggerated dip that we see in the banking space should be bought into. Would you recommend buying into the banking space? Where would your preference be within PSUs and private?

A: I am completely overweight on private banks. As I always mention, private sector banks are very poorly valued relative to what they were earlier, except Yes Bank which has been able to garner very good valuation.

Some emerging private sector banks like ING Vysya and Karur Vysya came up on a complete re-rating in the last 12 months but the larger ones have been very cheaply valued relative to what they were in the past. I think this is the right time to have more faith and confidence in them for future. They are very well positioned on the asset side of the balance sheet and I think with their retail focus coming in these strategy should pan out very positively for them.

Q: On OFS issue, Kennametal was fully subscribed and tomorrow we have Nalco, in terms of subscription which one would you pick up?

A: I recommended and subscribed to NTPC. I don’t follow Nalco and Kennametal as they are very small stock and their share price had moved up above 100-150 percent in 2011-12, on the back that it will be delisted but the whole game misfired. Now, it is on a fair value basis. If the auto sector recovers then Kennametal will play a role. It has nothing to do with the OFS right now.










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