The risk-reward ratio in the market looks reasonably favourable right now, says Sanjay Dutt, Director at Quantum Securities. He feels there is no reason to panic and instead advises picking up quality stocks.
On his sectoral picks, Dutt tells CNBC-TV18 he prefers pure-play domestic cyclical companies like steel and cement. Though it is tough to put a timeline on the revival of private capex cycle, he feels steel and cement companies will continue to get good business from large infrastructure rollouts.
He has been positive on the public sector banking space for about six months now and believes there is still value in the sector. With fund inflows into banks following demonetisation and non-performing assets’ pain on the verge of easing off, PSU banks could even outperform some private sector banks after few quarters, he says.
Below is the transcript of Sanjay Dutt’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Anuj: Will you start accumulating stocks now? Do you think this market is taking bad news in its stride or do you get a sense that momentum is firmly on the way down?
A: The risk reward looks reasonably favourable at this point of time. No one can obviously game a bottom in a market like this where the across the globe, in terms of news flow whether it is out of West or whether in India, how the currency equations are adjusting right now between emerging markets and US dollar. One really cannot game that as such. Therefore, as far as the demonetisation fact is concerned, it is more or less getting factored in. Maybe a good time to start accumulating and nibbling at good quality stocks.
Sonia: So what stocks would you buy now because the best quality stocks, this year were the consumption stocks and how that story has sort of crumbled over the last 6-7 days. Is that the pocket that you would look into now?
A: On that, I would be a little cautious right now because one does not really know as to how long would be offtake, topline, etc. and margins would be impacted and how soon would everything would get back to normal for them whether it happens end of this quarter or next quarter. But safer bet at this point of time would be pure play cyclicals which are focused on the domestic plays, probably things like steel, cement, infrastructure, those kind of things because one is really certain of that irrespective of what is happening right now in terms of consumption and of course the money supply in the system. Those companies would continue to get their orders, those companies would continue to get business from large infrastructure roll-outs and projects, etc.
Yes, private Capital expenditure (Capex) cycle, one is still now sure of as to where exactly will it turn and where it will really take off, but there is a reasonably good chance that government expenditure would support those sectors substantially. So, I would prefer banking, domestic cyclicals like cement, steel, etc which have corrected substantially, something like Tata Steel which has corrected, some of the other steel stocks, like probably UltraTech Cement or these kind of stocks which have gone through 20-40 percent corrections. I would definitely like to start buying in that.
Anuj: You have been a big fan of PSU banks from the last six months or so that the trade of course has played out beautifully. Still more gains here?
A: Oh yes, on every decline, on every 2-4 percent Bank Nifty fall, particularly, PSU index fall day, it would always make sense to buy into the PSU banks because the kind of money that is coming in, the kind of lending they will be able to do, the kind of current and savings account (CASA), the kind of adjustments that will happen in the balance sheets with this whole step, they will be way ahead of private sector banks for the next few years. I am not saying the private sector banks will not make you money, but compared to the valuation gap, PSUs still need to do a much bigger catch up. And a lot of their non-performing asset (NPA) issues will also start getting resolved in the next few quarters or so for various reasons as I was mentioning that if domestic industry starts to pick up in the next 6-12 months, those revolutions will also start.