Aug 08, 2013 01:43 PM IST | Source: CNBC-TV18

Nifty won't break 5500 instantly; cautious on FMCG: Baliga

Nifty is likely to bounce back, but whether that will sustain remains doubtful, says Ambareesh Baliga, Edelweiss Financial Services.

The Nifty won’t break crucial support level of 5500 immediately on hopes that the central bank will protect the free falling rupee, says Ambareesh Baliga, Edelweiss Financial Services.

Infact the Nifty is likely to bounce back, but whether that will sustain remains doubtful, he told CNBC-TV18.

One can look at exiting Tata Motors at current levels because company’s dependence on China may lead to slowdown in offtake, which will keep the stock under pressure.

IT and pharma stocks which have been performing well compared to other sectors are likely to witness more correction.

He finds valuations of FMCG companies like HUL and ITC stretched given the fall in discretionary spends; he remains cautious on this sector.

Below is the edited transcript of Ambareesh Baliga’s interview with CNBC-TV18

Q: Do you think that 5,500 support is breaking down?

A: As of now it may not breakdown. We could take some support at these levels. There are expectations that finally Reserve Bank of India (RBI) could have a handle on the rupee and may not decline too much from here. So based on those hopes possibly we will have some support at these levels. We could see some amount of bounce back, but I doubt whether that can sustain.

Q: How would you react to Tata Motors numbers and what is your call on the stock now?

A: Numbers are weaker than expected, so there a bit of a disappointment. Again their dependence on China is worrying me because even going ahead there will be a slowdown in offtake there. That will create pressure. Even at these levels, I would say it is possibly time to book out to a certain extent.

Q: Yesterday we saw the first signs of some of these pharmaceutical companies coming off, Lupin was down 7 percent post its earnings, Sun Pharmaceutical Industries lost quite a bit as well, how would you approach these names?

A: We could see some more correction because pharmaceutical and IT are one of the few spaces where people are still making money whereas rest of the portfolio is bleeding from the other sectors. It is quite natural that people will book out to a certain extent wherever they are making profits and especially when the valuations seem a bit stretched given the economic scenario. That correction will continue a while longer.

Q: If there is another leg of a downside in this market, from these three spaces that have been holding up, IT, pharmaceutical and FMCG, if you had to be cautious on one space, which one would it be?

A: FMCG would be one space where I would be cautious because valuations are stretched and especially when discretionary spends are coming down, that is going to hit the FMCG space the most. On a stock like Hindustan Unilever Ltd (HUL) or ITC I will be quite cautious at these levels.

Q: What is your call on Oil and Natural Gas Corporation (ONGC) right now after the news on the subsidy?

A: For ONGC, it is still time to stay out. The only stock in that space where one should be looking and buying is Reliance Industries Ltd (RIL). We are bullish on it. Despite that penalty news, we feel that it will be quite difficult for them to implement that. In case we see a correction, I suppose one should be getting into RIL.

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