Mar 07, 2013 02:06 PM IST | Source: CNBC-TV18

Don't bottomfish, get on to compounding: Nirmal Bang

Mehraboon Irani of Nirmal Bang Securities believes any sharp declines seen in the market should be used as opportunity to buy. He advices investors to stay invested in defensives. He expects decent returns from them going ahead.

Mehraboon Irani of Nirmal Bang Securities believes any sharp declines seen in the market should be used as opportunity to buy. He advices investors to stay invested in defensives. He expects decent returns from them going ahead.

Also Read: No takers for midcaps; RBI, Re key triggers: Morgan Stanley

Below is the verbatim transcript of Mehraboon Irani's interview on CNBC-TV18

Q: Is this just a pullback to the huge damage that has happened over the last couple of months or do you think we have seen the worst?

A: The market had run up a little bit too sharply mainly because of liquidity and whole lot of things which were done at the cost of political capital. We need to appreciate that economic capital came into play six months before the Budget. Consequently, a lot of expectations were built around the Budget that has been a bit of a non-event despite giving a direction on trying to improve macros. If the macros improve which the deltas are showing as far as the deficit goes, as far as interest rate goes, inflation goes and maybe growth goes. The deltas are improving.

It is a great time to look at sharp declines in the market in 2013 that will come as and when maybe globally events affect us or maybe some populist schemes come ahead of the elections. That should be used as a good opportunity to buy only the front and maybe 25-30 companies from a longer term angle. Over the last 15-20 days we have witnessed a lot of risk aversion with the way smallcaps and midcaps have suffered, because the fund raising ability is a doubt, payment of interest for some of these companies is a big doubt. Investor confidence has gone down very sharply since early February. I don't think this will come back in a hurry,.

Trying to find opportunities in the market to make a killing because the stock has come down sharply, I don't think is the best thing to do. So, we are advising investors the art of compounding. Go back and look at your portfolio, find stocks which have performed remarkably well since 2008 which have given good returns and go on adding on to it whenever the market gives opportunity and it declines. Otherwise, trying to do bottom fishing right now is not the best advice for investors.

Q: FMCG might come up in that list if one were to rewind to 2008 and performance from there but those stocks have been suffering quite a bit including frontliners like Hindustan Lever and ITC. Would you buy anything there?

A: We are advising investors to stay invested in defensives. It is through that, quite a few of those stocks especially in the run up since September when the markets went up, they have relatively underperformed. Expecting them to correct or not protecting the capital at the present price is not going to happen. These stocks are ultimately going to end up giving decent returns.

If you are in a market that is going to go up 5-7-10 percent higher from here, it is possible that these stocks would continue to relatively underperform. But, are we quite sure of what will happen in the next one-three months? So far so good, but as we go ahead, considering state elections are coming, considering we are just 13 months away, the biggest risk for India is going to be the currency. Also the fact that somewhere, economic capital will again be sacrificed with political capital ahead of the elections. In such a scenario, which is still very fluid, it is not the best thing to go away from defensives. Ultimately, protection of capital is quite important in the slowed environment.

Q: How would you approach Rashtriya Chemicals and Fertilisers (RCF) where we will get that offer for sale tomorrow and MMTC where eventually an issue will come but the stock was down 6 percent yesterday?

A: MMTC, looking at the way the floating stock is in the market, the price that we have seen in the last one to three years has been very artificial. It is difficult to define a price on MMTC so completely shying away from it. Quite a few people have called up and asked us what one should do with MMTC considering the way the stock has fallen.

But this is not a stock which one should be seeing that okay, we have seen a price of Rs 700 and Rs 800 and now at this present price is possibly should be buying into it. This is because if one sees the shareholding pattern, any price irrespective whether it is Rs 250 or Rs 800, it is not the right price. So, this is a clear cut pass. As far as RCF goes, a little interesting, but again, in this present environment, not tempted to recommend it.

Q: How would you sum up sentiment now in retail and HNI? Is there still quite a bit of disinterest that you see regardless of market levels whether they are going up or going down?

A: Very much. Only a positive coming out of the market is that the investors are remaining invested but as far as additional funds go, it is not easy. Talking about equities to these investors, it is not easy because quite a few of them are already feeling trapped in and a few of these companies which have lost 30-40-50 percent of the market cap. We don’t have investors of that type but they have examples in front of them. This is the biggest reason why suddenly there has been a little bit of a risk aversion. So, we are trying to advice investors the art of compounding.

There are only 25-30 names out of the 7,000 odd companies listed in the market where one can go blindfolded and say okay, I want to buy it for two to three years. Now, if quite a few of them are already in your portfolios, look at buying into them as and when the market provides you an opportunity or there is a sharp dip in the overall market. In India with its own problems, these types of opportunities could continue to come in calendar 2013.

Looking at the way the Budget has come out, while 2013 is not going to be easy, we could look at much better times in 2014-15. The point is what do investors buy and what to tell them? Therefore, the best advice is to go and buy into the same HDFC, HDFC Bank, IndusInd Bank, Sun Pharma, Lupin. Those type of companies as and when the market comes down sharply and these stocks are available much lower than where they are today. This is the easiest and the best way of trying to make money in a stock market that will have its own periods of uncertainty in 2013.

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