FY13 Sensex band at 18K-19K, QE3 won't aid India: StanChart

Q: You have tracked oil and gas for a long time. How do you approach some of these gas based stories, something like GAIL was down 8% last week, how did you read the note that came in from PNGRB and the fear there is right now of such great regulatory interference?

A: Without getting into specific stocks, it is a bit of a setback for the entire sector in terms of the return outlook. But, we have to clearly segregate companies which are not in the retail marketing front and which are not going to be under the purview of PNGRB.

Something like a Petronet LNG stands out. We know there have been excessive fears, but, we also like Gujarat State Petronet . I think the stock is factoring in all the negatives of new pipelines as well as regulatory risks. It is at a point where it is a good value pick, especially if you believe in the long-term outlook for the improving gas supplies, either through LNG or through recovery in Reliance's gas production. These are the two stocks which we like among the gas utilities.

Q: In the banking space so far we have seen good performances come in from some of the private banks like Axis Bank, ICICI Bank etc but within this space, which banks, if at all, would give you more comfort from an investment opportunity perspective from hereon?

A: Our top picks are ICICI Bank, Yes Bank, Bank of Baroda. From a result point of view, State Bank of India (SBI) could also surprise on their gross slippages number in terms of it being lower.

We could get a short-term upside in SBI from a results point of view but the asset cycle or the bad asset cycle is more of a journey than a cycle. Hence, we would keep getting over the next four-five quarters negatively surprised on the asset cycle, at least that is what our call is.

We would stick with private sector banks like ICICI Bank and Yes Bank in terms of a slightly long-term horizon, if you didn’t want to take a 12 months view on the sector.

Q: What about HUL ? What are your thoughts on that because that stock has pretty much defied all valuation hurdle theories, it comes out with its numbers tomorrow, what are the trends that you are expecting from that one?

A: We are expecting a strong set of numbers for HUL. In fact that is one of the companies where we are expecting the numbers to surprise, if not surprise at least meet expectations and it will be a pleasant set of numbers.

We remain positive on HUL. The company is right now in the midst of a strong structural uptrading phenomenon which is there in the consumer sector. I think there is still appetite for stocks like those in India.

People want to buy India for growth, not for value and HUL is in a sweet spot both in terms of fundamentals and in terms of the investor appetite. As I said, the investible universe is coming down in India every passing day with fundamentals not keeping pace but, in case of HUL, we don’t see any such hurdles in the near-term or even in the next 12-15 months. We think the stock would outperform the market.

Q: What is the official call on Reliance now and do you expect there to be any cushion on the downside because of that buyback announcement?

A: More than buyback, I think the stock is right now stuck in the middle of very weak near-term fundamentals or lackluster near-term fundamentals. When I say near-term, it is two years before we see an uplift. But if you look longer ahead and look at FY15-FY16, there are three projects which are going to be commissioning, there is a likelihood of E&P production itself reviving.

I think the stock is in a no-man’s land or the stock is pretty much balancing these two factors of long-term growth, coming back say FY15-FY16 onwards. But, near-term fundamentals are not looking great and that is where buyback comes and support this stock.

I would say the stock continues to be rangebound between Rs 700 and Rs 800. Below Rs 700 is when the investor should be looking at it from a value perspective and for longer-term. But, if people don’t have that kind of investment horizon, it will remain a trading stock between Rs 700 and Rs 800.