India story according to Rakesh Arora, Macquarie Capital Securities, still remains intact although the market could be range bound in the near-term. However from two-three year perspective things do look alright, he adds.
Market was getting too pessimistic about the Indian rupee, all the while ignoring the slight improvement in trade deficit, as well as exports number. India could have a limited current account deficit (CAD) if the trade deficit numbers continue to be good, says Arora.
He expects FIIs to be in India for the long haul because so far they only sold about USD 3 billion compared to investments of USD 200 billion.
Commenting on the UltraTech Cement and Jaiprakash Associates deal, Arora feels from a long-term perspective the deal is positive for Ultratech. He sees this deal as a one-off transaction in the cement space and does not see a consolidation in the cement industry.
He advises investors to buy UltraTech Cement from two-three years perspective when the price comes below Rs 1400.
Below are the excerpts of his interview on CNBC-TV18
Q: We have been waiting to hear your thoughts on what you made of the entire deal. It seems like a win-win for both but how would you approach stocks, both JP Associates as well as UltraTech Cement today?
A: Both the stocks are already run up in anticipation of this deal. This deal is good for UltraTech Cement from a long-term perspective because they are building in huge operating leverage. So whenever the recovery comes in, UltraTech Cement will be the stock to own.
However, in the near-term we are not in any kind of bull market, we are in a bear market. Things are looking extremely tough. Looking at what is happening in the cement market; I think October numbers are going to be extremely bad, which suggest investors to wait out for dips. We may get Ultratech Cement back below Rs 1,400 or so and that would be the level to buy for 2-3 years perspective.
JP Associates has done a good start by selling out some of these assets but the debt that they have is huge and it will require serious deleveraging for the company to come out of woods. So I would say it is a good start but already captured into the stock price and we need to wait and see whether they can sell some power assets or some other cement assets to get constructive on that name from hereon.
Q: What is your view on the market - do you think this is a rally that people would use to sell?
A: We had always expected this rally to come in the last few weeks because market was getting over pessimistic about Indian rupee. However, the indications that we are getting from the companies in terms of exports is that it has picked up quite dramatically and we also saw a strong trade number. These indications were being ignored.
However, now all eyes would be on how the trade deficit plays out because Indian might be turning into a current account surplus or at least a very limited current account deficit (CAD) if the trade deficit number continues where it is. So, concerns on rupee were overdone.
Secondly, the data coming out of US was not encouraging. So our expectation was always that quantitative easing phase-out would start in right earnest only in probably 2014. So overall, we expected Indian rupee to appreciate.
FIIs have not been able to sell out much and India is a one-way market. FIIs have invested USD 200 billion into Indian equities and they sold USD 3 billion, which is nothing compared to the inflow. Most of the long only funds that we are speaking to, have not been able to sell anything. So, they are going to be in India for long haul. Therefore, I don’t think there is going to be an exodus as such although obviously hot money will come in and come out but I think the India story remains intact probably rangebound in the near-term. But from a two-three years perspective, things are looking okay.