May 10, 2013 06:48 PM IST | Source: CNBC-TV18

Emkay Global sees Nifty in 5900-6100; picks 7 midcap bets

After Indian market rallying high in the past couple of trading sessions, Sandeep Singal of Emkay Global feels the midcaps will keep the Nifty in the range of 5900-6100. He feels there are no real triggers that can break the 6100 range of the market.

The Indian market has been rallying in the past couple of trading sessions due to increased foreign inflows. The Nifty has rallied more than 500 points in span of last four weeks.

Sandeep Singal of Emkay Global Financial Services sees the Nifty hovering in 5900-6100 range going ahead. However, given the lack of key triggers on global and domestic front, crossing 6100 level may be difficult.

Also Read: Sell only if Nifty corrects below 6025: Aditya Birla Money

“Most of the smart money in the world is going towards developed markets than emerging market and that is evident by the way we see S&P and Dow Jones breaking the new highs and Nikkei making five year kind of a high. We are getting our share of money but that is not enough to break the steam and take the index to the new high,” he told CNBC-TV18.

Meanwhile, Singal is bullish on Federal Bank, Motherson Sumi, Glenmark, Wockhardt, Havells, Amara Raja Batteries and Madras Cement from the midcap space.

Below is the verbatim transcript of Sandeep Singal’s interview on CNBC-TV18

Q: The market is still holding above 6,000 level. It has been about 500 plus point rally in a span of one month. What is the call now on the Nifty?

A: Our research analyst studied such market moves in the history and made an attempt to draw some correlation. Whenever there is such a brisk move in the Nifty which is about 8 to 10 percent in our case in 15 sessions – Nifty has moved from around 5,477 to 6,000 plus, about 15 percent. There were earlier two instances - one from January ‘12 to March ’12 and another from September ’12 to January ’13. In both the instances, the Nifty ran 10 percent above.

The midcap index gave a return of 25 percent plus. That is exactly what we are expecting this time as well that given this run-up we expect broader markets to remain in a 200 Nifty point range maybe about 5900 to 6100. That is where we are recommending buying our preferred picks of Federal Bank, Motherson Sumi, Glenmark, Wockhardt, Havells. Amara Raja Batteries, Madras Cement one can generate alpha return in the portfolio.

Q: Why are you not expecting the market to breach the 6,100 mark? Today’s index of Industrial production (IIP) number was mildly positive. There have been some rate cuts by some banks – Punjab National Bank said yesterday that they will cut and today IDBI has actually cut – don’t you think the market has a chance of breaking 6,100?

A: Most of the smart money in the world is going towards developed markets than emerging market and that is evident by the way we see S&P and Dow Jones breaking the new highs and Nikkei making five year kind of a high. So, most of the smart money is moving there. We are getting our share of money but our sense is not enough to break the steam and take the index to the new high and that is one reason.

Second, most of the positive that one could expect has already been planned out in terms of reform taking place. Reforms like price cut in petrol, price cut in diesel, government announcing their foreign direct investment (FDI), some other reforms and now Reserve bank of India cutting rates two times – all these did not excite investors to take the index beyond its high. Then we need to see what positives to expect so that the investors would take the index to new high. I can’t see any except that everyone would get surprised by the earnings growth of corporate India and they would beat all the analyst estimates. Then yes, it is possible. We are always positive about that but does not look that feasible at this juncture.


Q: You started with Federal Bank – what kind of price targets are you giving for the stock?

A: Federal Bank is at around 1.1 time adjusted book value FY14 and one time FY15 book value. There were significant branch additions, the asset quality is at 2 percent in terms of non performing assets (NPA) to the growth assets of the bank. Among the private sector banks we see much better value in Federal bank as compared to other private banks which has a good run and quoting at a rich price to book valuations multiples.

Q: You have two auto ancillaries – one of them is Motherson Sumi and the other one is Amara Raja Batteries. The auto sales numbers look fairly disappointing, what is driving these two picks of yours in the auto related space?

A; Motherson Sumi is not only depended on the domestic car market but have their products exported to the world car market and that is where they are getting traction. In their group companies, they still have about USD 400 million sales. Talking about the standalone India entity, we see that incremental. As they move forward, they would be able to shift those exports from this kind of an entity and top-line would go up.

Second, their merger with Samvardhana Motherson Reflectec (SMR), and the other company has gone through well. This is one other ancillary company we see as global in nature and do not directly depend on the domestic markets only and that is where it becomes our top pick.

Q: The rally that you are expecting in midcap, is any of it underway and is this more of a positioning rally or do you think people can hold those stocks for a bit? Will the gains hold because if you are looking at it as a positional tactical move then you may expect the Nifty to give up some of its gains in the next few months and along with that the midcap should give up more than the Nifty – therefore, will a long-term investor make money on these stocks or should he look for an exit after he gets his 20 percent?

A: Right now, this is a tactical move and one should take away 10-15 percent gain and should not buy from a perspective that one is about to hold these stocks for a longer term.

However, in any investment that you are in, one needs to continue reviewing. If your price target comes in about 3 to 4 weeks at the time of exit, one needs to reassess the situation. Suppose the Nifty has taken a high by that time, then instead of exiting – it makes more sense to continue holding it and enjoy more often.

Q: Wockhardt has corrected quite a bit and you track that stock. From levels of Rs 2,100 it has corrected to Rs 1,670 in today’s trade. Do you expect more correction and what would be the short-term as well as medium-term outlook on that stock?

A: This stock has gone into distress levels to Rs 500 and then it gave a fantastic rally and now it is correcting. Our take on this stock is that their business in the US has started gaining traction and now the real earning starts, which would be sustainable. In our view it is like buy on every dip.

Q: Outside what you have picked up as great performers in this midcap rally that you are expecting, are there other stocks that your research has thrown up? There will always be extraordinary outperformers either because of a banking license for instance Mahindra & Mahindra Financial Services Limited (MMFSL) or an AB Money. The Reserve Bank of India (RBI) governor seemed to indicate that he is in a mood to give a large number of new licenses, for these and other reasons are you looking at outperformance in some other stocks?

A: Yes, there are always certain other buys. We had chosen these names because we see some immediate triggers there. We have one of the best lots among the buy universe in the midcap space. A few other midcap names where one can put a buy are IRB or Coromandel International in the agri and pharma space, Hexaware in IT space. So there is a good list of stocks to continue buying in such environment and hold them.

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