Giving his outlook for the market next week, Mehraboon Irani of Nirmal Bang Securities said a good monsoon and current account deficit (CAD) numbers can possibly take the markets up.
Speaking to CNBC-TV18 on his top picks across sectors, he chose Housing Development Finance Corporation (HDFC) as he sees a 20 percent growth in its loan book and improvement in the asset quality going forward. HDFC Bank and IndusInd bank have a tough fight for the second best pick, he added.
On the buyback offer of Hindustan Unilever (HUL), he said that if the response for it will be good, then the market may reach higher levels.
He picked Reliance over other stocks such as Oil and Natural Gas Corporation (ONGC) and Oil India in the oil and gas sector. The uncertainty over subsidy sharing for public sector companies, along with Reliance being the dark horse will ensure that the stock moves higher, he added.
Below is the edited transcript of his interview to CNBC-TV18.
Q: What do you think will happen? The start to the July series has been extremely constructive. But where do we go from here?
A: The markets are teaching us one simple line; to make money in the market, you need to remain invested in the right quality stocks. Last week, nobody thought that a 57/USD is going to become 60/USD as far as the dollar goes.
Nobody honestly knows how it is. In a very short-term, making a call on the market is becoming difficult. There are a lot of global events. There are a lot of balancing things which are happening in the world. We also had the China factor this week and look what happened over the last two days.
Markets have gotten very polarised. There is lot of squeezing as far as short positions go; which led the markets to go up this week. The good quality stocks should continue to perform next week. Two things which virtually stand out are great positives for the Indian economy which have come over the last 48 hours.
It is the current account deficit (CAD) number and the fact that the monsoon has been pretty good so far. The second factor honestly nobody is talking about. At last year where the monsoon was not good virtually everybody was blasting it saying that it is not good, but this time nobody is giving praise to it.
These two factors alone can possibly take the markets up. The Hindustan Unilever (HUL) buyback; if there is a decent response to it and we see dollars coming in and the rupee hardening a bit more; we could be discussing much higher levels next week.
This is a market in which wherein a sharp dip, and a decent opportunity to buy good quality stocks should be capitalised to be buy and wait for the trend to turn up. People who invested on Wednesday would have had made money over the next two days.
Q: You have a couple of banking stocks that you have picked out from the private banking space. Tell us about why you would put your money there next week?
A: We continue to remain positive on the private banking space. There is a clear-cut positive bias towards this particular space, namely, the public sector banks. Public sector banks people talk of book value and price-to-book value.
The book value itself is under a big question mark because of the type of flows that they have in the books is doubtful. Private sector banks including the housing finance companies; our top pick is Housing Development Finance Corporation (HDFC).
Over the last 33 quarters if one looks at the asset quality has continuously improved. We see the loan book continuing to grow by around 20 percent. Risk weightages changes introduced by the National Housing Policy (NHP) auger very well for HDFC. The company will come up with wonderful numbers for the quarter ended June when it announces the numbers on July 19th.
We have a buy on this with a target of around Rs 1,075 over the next three quarters and if one looks at the stock; Rs 930 had become Rs 810 over the last 10-15 days and it was a great buy. Rs 810 has again rebounded back to around Rs 860-870 level. Should one deter away or stay away just because the stock has gone up from that level I do not think so.
HDFC remains a top pick for us along with at number two close fight between IndusInd Bank and HDFC Bank. We prefer IndusInd Bank looking at the way the stock has relatively underperformed vis-à-vis HDFC Bank last week.
Even from a shorter term view, IndusInd Bank qualifies as a good buy. We expect wonderful numbers from this bank as always for the June quarter and a price of over Rs 490-510 even in the short-term we are not ruling it out.
Q: The big trigger last week from a micro equity market standpoint, and a broader standpoint was the gas price hike. What has been your key takeaway? Would you back some of these stocks like Reliance Industries and Oil and Natural Gas Corporation (ONGC) further?
A: Reliance Industries is our top pick in this particular space. Till last week, I was always mentioning it is the dark horse. But looking at the way things have panned out, we prefer Reliance to the public sector companies.
If one goes back and checks up the Finance Minister's commentary in the press conference; he had mentioned that he will be considering providing some sort of benefits for the power companies and fertiliser companies. Nobody knows what that means. The grey area in all this is why April 1, 2014; why not immediately?
There are some grey areas in whatever has happened. Of course it is very positive for the entire sector. But a subsidy sharing burden for the public sector companies is a big question mark right now.
That is why possibly both ONGC and Oil India reacted sharply from the highs which they touched on the morning. For that simple reason, we are preferring Reliance Industries. Whatever Reliance is going to do, this announcement of gas price hike and a review every quarter is a sure indicator that Reliance will move the fastest on this trajectory which has been created by the Oil Minister.