Professional investor Sangeeta Purushottam estimates the market to consolidate and adds that the record amount of inflows and the absorption of the offers-for-sale from the government are very encouraging signs.
In her interview to CNBC-TV18, Purushottam is positive on NTPC primarily on valuations and the stock’s potential to offer returns of at least 25 percent over a year. The professional investor also expects SBI to offer a positive surprise as the PSU bank is far ahead of its peers in terms of asset quality and setting its books in order.
Below is an edited transcript of the analysis on CNBC-TV18
Q: The market has been looking very tired over the last few days. Is it shaping up for a bigger drop or do you think it will end in a consolidation kind of grind?
A: I think the market should consolidate rather than end in a sharp drop and then hopefully move on from there. While, the price-action and the market breadth have been disappointing, it is encouraging that liquidity continues to be very strong evinced by so the record amount of inflows in January.
Although it has been matched by equal supply, the large number of offers-for-sale (OFS) from the government and elsewhere has been absorbed fairly easily. That is encouraging. I hope that once a large part of the government fund-raising is out of the way, the pressure on the market eases.
A: The cement sector, particularly the large-cap cement segment, has been performing well for quite some time. However, the valuations are not really compelling as far as the larger companies go. So broadly, it just makes sense to look at other opportunities in the market and maybe at the smaller cement companies. That is the broad strategic call that I am taking on cement.
Q: Would you be inclined to buy midcaps after the recent correction or do you think their underperformance might linger well into 2013?
A: It could linger for a few more weeks. The first upturn in the market will be in the large-caps. So it is a question of really how investors time it and one really needs to be selective. In fact, the strategy is to be stock-specific and pick companies that appeal, in the correction.
Q: Mahindra & Mahindra (M&M) is to announce its results today. What are your expectations and incrementally, will the upside from M&M be much more?
A: The key aspect to watch out in the M&M results is the performance of the margins. As far as all auto companies are concerned, since the results are made available on a monthly basis there is really not much of a surprise.
It is really the margins where one can hope for some positive surprise out of both operating leverage and internal leverage cost controls that any company conducts. And more importantly, investors also need to watch if the company has benefitted from the softening in commodity prices.
Going ahead, the product pipeline is reasonably good and the company should be able to post continued reasonable growth particularly because its utility vehicle segment has performed well in the car market all through 2012 and that trend is likely to continue.
The other upside for M&M could come as and when the tractor results turn. Though there is no sign of that yet, but over the course of next year the possibilities are high of an improvement.
A: I would avoid BHEL primarily because of the preponderance of the power sector. The role of the power sector as a significant contributor to growth has considerably diminished.
L&T is a stock that investors could just hold in their portfolios for any signs of an upturn in the capex cycle over the next year or two. I wouldn’t really rush to buy anything in the capital-goods sector because the timing of the upturn in the investment cycle is still uncertain.
Q: Now that the NTPC offer-for-sale (OFS) is out of the way, how would you approach the stock?
A: Actually, I am positively inclined towards NTPC primarily on valuations. It is a fairly safe and steady stock as far as performance is concerned. Many of the problems hampering growth could be addressed if the hurdles in the power sector including the pricing of coal are addressed over the next few weeks. The valuations are at multi-year lows. So there is a possibility of a positive surprise and the stock has the potential of offering a return of at least 25 percent over a year. So at Rs 145-150, it would be a good, safe stock to own.
Q: What is your expectation from the State Bank of India (SBI) this time around? Would you be cautious?
A: SBI has been ahead of the curve as far as cleaning up its books and asset quality, are concerned. I estimate some kind of a positive surprise from SBI. I would expect it to perform a little better than other banks. The entire PSU-bank results have been a mixed bag. So within that, I would tend to think that SBI should do reasonably well.