In an interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Udayan Mukherjee shared his reading and outlook on the market and specific sectors.
On midcaps, he said he was definitely seeing signs of euphoria.
He also talked about liquor stocks, saying he was not a 'fan' of the space.
Below is the verbatim transcript of the interview.
Sonia: This morning we wake up to positive global cues, some positive comments coming in from the US treasury secretary. So the mood seems to be good but by and large we have still been gravitating around pivot point of 9,150. You think we have to be a bit patient before the new highs get taken again?
A: If the market remains in a range and consolidates at this point after such a strong rally and that is the extent of the correction. Nobody should be very unhappy particularly if the breadth continues to remain strong.
The market has been extremely resilient these last few days given that the run-up has been so strong and there were signs of some geopolitical stress, global markets also appeared a bit edgy and then a start of the earning season, which was not exactly perfect. After such a strong rally you could have forgiven the market for correcting more but we haven't even tested 9,100 meaningfully. So this is not a correction. It is probably a surrogate correction which is basically the Nifty finding 200 point range and spending time within it.
Therefore, the evidence on the screen is a remarkably resilient market, no spike in volatility. I would even go to the extent of saying the market is appearing complacent in the light of some of these recent triggers. So technically this does not resemble a weak market at all but let's see as we way deeper into earning season.
Latha: I am not able to reconcile the market's complacence with the kind of numbers we are getting; even well-performing sectors like airlines are showing slowing of growth. We haven't seen big signs of growth but who can argue with this money- Porinju bought Shalimar Paints, Madhu Kela bought Radico Khaitan, Dolly Khanna bought Dhampur Sugar Mills. I am telling you about really big savvy investors buying in the last 24 hours. What a clutch of deals we saw. Therefore, is this market really headed higher?
A: It is difficult to say, the names that you reeled off are pedigreed investors but I have never been a big fan of thinking that if a pedigreed investor buys a stock that is the reason for the stock or the sector to do well. For example I am not a big fan of the liquor sector which Madhu Kela's family has bought into. I know that some of these stocks might have some potential but one after the other states are talking about going dry, shops close to highways are shutting down. These are all not great policy signs going forward for the liquor sector. However, people made money in United Spirits, maybe five years back but in the last two or three years most people have lost money in that name rather than make money.
So some of these things, they work out and sometimes they do not work out. So that is never a reason for buying stocks because a few investors have bought a few midcap names, in fact these midcaps are the ones which worry me the most right now. Because the kind of euphoria you are seeing in many of these midcap names, you just pick a theme and say maybe this can grow 20 percent and before you know the stock starts trading at 40 PE multiple. There are signs of euphoria in the midcap space, make no mistake about it.
Haven't seen so much of earnings backing up that kind of euphoria and every time the midcaps outperform over a sustained period as we have had right now, it also invites a lot of undesirable elements into the market and you are seeing signs of that in the Futures and Options (F&O) already. So no argument with some people buying some stocks and some of them may go on to do well but a fairly healthy dose of caution is warranted particularly in midcaps.
Sonia: Wanted your thoughts on some of the banking earnings because now some of the cleaner shirts in the laundry basket are getting a bit soiled. We saw it with Yes Bank with lumpy non-performing asset (NPA) and some jitters in IndusInd Bank's numbers as well. Should long-term investors look at this as a great opportunity to jump in and buy some of these marquee banks or would you wait a bit?
A: They have corrected 2 percent after rallying 40 percent. So I do not know whether it is an invitation to jump in and buy stocks. We know meaningful corrections in private banks. It seems like a Jaiprakash Associates' problem with the two names that you mentioned. It may not go away tomorrow but it is fairly specific problem. Let us see how things pan out over the next quarter or so, but at this point I would say it is a wrinkle that has appeared on the surface of a very calm sea in private banks. The problem is valuations. If the stocks were trading at two times book, you wouldn't worry about such a wrinkle but when stock trades 4 times a book and a wrinkle appears on the surface then you tend to worry a bit because even small wrinkles can cause disturbances when valuation levels are quite elevated. So that is the problem that these banks are price to perfection and I do not think the market will have any appetite to digest even the smallest of negative surprises. So I do not think these stocks are going to fall apart or anything like that but if this continues for another couple of quarters -- there is another sector problem cropping up in telecom which is a fairly large sector with it tertiary sectors attached to it. If that seems like that will affect the asset quality of some of these names even in the private sector over the next couple of quarters or next year then you might see some kind of problems cropping up. So at this point I wouldn't panic but for the rerating of the sector from this kind of price level, is stretching credulity a bit.For entire interview, watch accompanying video.