Budget likely marginally positive for market: UBS

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Budget likely marginally positive for market: UBS

Suresh Mahadevan of UBS Securities is expecting the budget to be a positive catalyst for the market. According to him, the government is going to announce a mixed budget that is likely to be marginally positive.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

Suresh Mahadevan of UBS Securities is expecting the budget to be a positive catalyst for the market. According to him, the government is going to announce a mixed budget that is likely to be marginally positive.

In an interview to CNBC-TV18, he said that the Sensex may hit 22,500 by March 2012. "FY12 earnings growth is seen at 18%," he added. Noting that data points on inflation is improving, Mahadevan feels that it is likely to come down.

However, he warned that foreign institutional investor (FII) flow is likely to be fickle in the short-term.

Mahadevan is positive on midcaps stocks like Tube Investments , Coromandel International and Exide . He also feels that L&T and BHEL are at reasonable PE multiples.

Below is a verbatim transcript of Suresh Mahadevan's interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. For complete details watch the accompanying videos.

Q: A few weeks back you put out a note saying in this phase of turbulence, it is not inconceivable that the Nifty goes back to 4,500 or the Sensex goes down to 15,000 before it bottoms out. Do you still hold those targets?

A: It is very hard to probably predict these things in the short-term. What we are essentially advising investors is if the markets goes down, a lot of investors would like to know how low can it trade and is it a good buying opportunity. Data point seems to be improving at the margin, particularly, on inflation. People are asking, is it a good time to buy and the answer is always, if you are a medium-term investor then you should buy the weakness in India.

At any point in time there are always ten reasons not to buy India. Even at 8,500 levels, a lot of people were worried. The market doesn't go up in a straight line. We are not out of this nervousness phase, yet, simply because a lot of money has come in last year, investors are still very nervous. Yes, the market can go lower and where we can completely blindly buy, it is at that 4,500 as well as 15,000 level.

However, my own sense is the index is almost misleading because if you look at some of the midcaps, they have corrected very significantly. You should generally be a buyer in weakness. That is a general theme we are trying to tell investors.

Q: Infrastructure has been absolutely demolished in the last month or so. You like names like Lanco which have got butchered the most. Any thoughts on what led to this carnage and whether it is justified?

A: If you look at investors, in times of nervousness, the midcaps have no bias. That sometimes provides very interesting opportunities. I do think that not only is midcap infrastructure attractive but even largecap is probably quite good, whether it is L&T or BHEL. They have come to very reasonable P/E multiples. BHEL is now at 13-14 times one year forward. L&T is maybe at 16-17 times, of course on the midcap side, we like Lanco, we like Nagarjuna, we like GVK. My sense is if you have a 12 month view or something on some of these stocks they could be very attractive I feel for investors to pick on, particularly, on the infrastructure space.

Q: Would you then say that 15,000 is your bear case scenario for the market other than fair value because what people are trying to gauge right now is how much earnings have got hit by and where the market should settle at?

A: Our target for the Sensex is still 22,500 by next March. Definitely, we are bullish in the medium-term. In the short-term, markets can go lower. The big worry I have is a lot of foreign investors have been nervous but looking at the FII numbers, it doesn't seem like they have all acted on their nervousness whether it is moving to defensive names or whether it is shifting money from India to other emerging markets etc.

If some data points or something else doesn't go well with the market and the market corrects, which triggers selling then 15,000 or 4,500 is a very good level where investors can just buy the market. In the meantime, investors can start accumulating select stocks which get weaker right now.