Feb 06, 2013 10:42 PM IST | Source: CNBC-TV18

Midcaps may push Nifty; NTPC OFS for big investors: Experts

Sudarshan Sukhani, s2analytics.com, says that today there are indications that 5950 is holding. We saw an intraday dip but it bounced back, which indicates that support levels are holding. I think that maybe a three-day correction is over, but it will be confirmed if we move above 6000.

Sudarshan Sukhani, s2analytics.com, says that today there are indications that 5950 is holding. We saw an intraday dip but it bounced back, which indicates that support levels are holding. I think that maybe a three-day correction is over, but it will be confirmed if we move above 6000. Interestingly, some mid caps are slowly showing signs of life and that could be a precursor to Nifty rally.    

Meanwhile, Anand Tandon, CEO, JRG Securities, says that for very large institutional investor it maybe a good time to look at NTPC. The valuations are not particularly stretched at this moment and large stock will be available. Retail investor should remember that it a utility and it is likely to give utility like return.  

Soumendra Nath Lahiri, head - Equities, L&T Investment Management, says that today, we are in a mode where results have marginally outperformed our expectations. So to that extent, market will consolidate, given the fact that we have had a sharp run up post September when the first stage of reform started off.

Below is the edited transcript of his interview to CNBC-TV18.

Q: How have you read the sideways moves that we have seen in the market over the last three weeks?

Lahiri: Market over the last couple of months was running ahead of fundamentals. Expectations were down. Once numbers came through, we saw the first blip where some numbers were outperforming expectations. Today, we are in a mode where results have marginally outperformed our expectations. So to that extent, market will consolidate, given the fact that we have had a sharp run up post September when the first stage of reform started off.

Q: What is your assessment of how result season has panned out in the sense post the result season which are the stocks or sectors that you would be overweight on now and which are the ones that you would stay away from?

Lahiri: Results this quarter have been slightly better than expectations given the fact that the expectations were much lower. People had tempered down expectations given that growth has started coming off and most corporates were feeling the pressure of input cost hikes. So, to that extent, a number of 8.5-9 percent growth in earnings is reasonable and that is more or less in line with expectations.

Post results, sectors that have done well or have shown some positive surprise are sectors, which have underperformed earlier. The oil and gas space given the pace of reforms that has come through has been positive. Some of the software names have done well with better expectations of both volumes and margins coming through given that their end environment is seemingly improving.

We have seen some uptick in the media names, again there has been a structural shift with digitization coming through. So, there are pockets where there have been improvements.

Even in telecom space hopefully the competitive intensity is also coming off and we could see some up tick.

Q: You track cement space closely, some big numbers are expected tomorrow and this quarter has been quite lackluster both with respect to demand as well as cement prices, what do you expect to see tomorrow and are you a buyer in this space?

Lahiri: The demand has been lackluster through the last few months. So one needs to see how things pan out in the coming quarters given the fact that we have elections coming up. It is natural that spend for construction increases during these periods.

From valuation perspective, the mid-cap and small-cap cement offer more value for investors. So, at this point in time, given where the stock prices are of the larger-caps, one would be better of looking at the mid-cap and small-cap cement names.

One can't expect great numbers given the fact that most of these companies have seen sedate volumes and prices have also not moved up as demand has been sober in this period also adds to this point. Within the cement sector if one needs to look at it – it would be better to look for more value in the small-cap and the mid-cap names.

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Q: Would you recommend investors to subscribe for NTPC OFS if indeed the price comes at Rs 145 indicative price and for a stock that has virtually had not too much of a movement in the last many years what kind of an up move do you expect to see on NTPC if at all?

Tandon: For very large institutional investor it maybe a good time to look at NTPC. The valuations are not particularly stretched at this moment and large stock will be available. Retail investor should remember that it a utility and it is likely to give utility like return.

That said it is perhaps in a more attractive sector today than most others because we are consistently seeing energy prices going up and if NTPC too is able to increase its prices though that is somewhat suspect, it could have a big wallop up. But that is an, if and but kind of argument, one should expect to go up in line with slightly higher return compared to fixed deposit.

Q: Is Rs 1130-1150 a good point to enter into Jubiliant Foodworks? Do you expect some more correction in store?

Tandon: The model of the company now will be lot more capital intensive than it has so far. It is a different market when one is looking at a takeaway kind of business versus something where one expect to have real estate where people will be required to come and sit and therefore consequent to that the return on equity (ROEs) and so on would be far more subdued.

The Dominos franchise was a unique franchise and none of the others are likely to be in the same range. Already, the valuations are very stretched so I would argue that incrementally the economic return from this company will be worst than what they have been so far. Of course they have been spectacular but incrementally it is likely to be more moderate.

Q: Are you taking a recovery call on a few of these PSU banks which disappointed the streets, like UCO Bank in the mid-cap space or Bank of Baroda (BOB)?

Tandon: We think that banks generally had a good rally and the public sector banks space which was less attractive to most investors has also done reasonably well barring a few spots. So, going forward I don't see banks being great outperformer right now.

I think interest rate cuts would be far more muted than market expectations and the recovery in terms of industry will also be less faster than expectations. The Reserve Bank of India (RBI) is also looking at means to recognize NPAs where they are and not just keep on kicking the can down the road. All of this can't necessarily mean that there will be a fast recovery, but that said, any bank which is trading at less than one time book value on an adjusted book value basis usually is a good investment with a two to three years timeframe.

Q: We are seeing a huge knock on Jaiprakash Associates, down about 4 percent. This one seems to be underperforming day after day, What is the reason for underperformance?

Tandon: It is little difficult to figure out the exact reason.

Q: The Jet-Etihad deal is expected now and according to aviation minister's latest comments the deal should be announced in the next 10-15 days but still that stock continues to be around that Rs 600 mark. Where do you see the stock headed?

Tandon:  A deal doesn't change the economics of the industry. The economics has improved in the last few months for the simple reason as some competitors got knocked out but this is an extreme cyclical sector with relatively low entry barriers. It should not be too difficult for if the demand continues to remain high for somebody else to begin to enter as well.

The fundamental issue of the industry is that most of the operating costs are fixed and especially in terms of the infrastructure especially airports and those cost continues to rise in an uncontrolled manner. So, this industry will continue to remain under some pressure, it is not something that I would recommend that should be for the uninitiated.

Q: Any change in your stance on the market, in the run up to the Budget do you expect to see any great volatility or do you think that this market will just see a grind, a sideways move up until the Budget?

Tandon: The finance minister is trying to set the agenda and expectations at a level which hopefully should lead to less surprises but he still has a challenge on his hand on how he will manage to achieve the numbers that he mentioning without resorting to voodoo economics. The market will give him the benefit of doubt to begin with and if the delivery happens one may see a little bit of a rally after that but I would not bet my horses on that. I think by and large the market has pretty much done what it has to do for the first half of the year and from now on it will require some real high octane drive for it to go up from here.

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