May 14, 2013, 03.41 PM | Source: CNBC-TV18

Not worried about Re; bet on Exide, Sun Pharma, Bharti: UBS

Suresh Mahadevan, MD & Head of Indian Equities, UBS Securities is of the opinion that Nifty will end 2013, at higher end of 5600-6450 range and sees FY14 earnings growth being slightly lower than 15-16%.

The Indian currency weakened to a two month low of 55.02/USD on Monday. However, brokerage house UBS Securities is not too worried about rupee’s movement at this point. “We are sure RBI will manage the volatility quite well. The market tends to give knee jerk reactions to data points and investors can take advantage of that,” MD & Head of Indian Equities Suresh Mahadevan told CNBC-TV18. He sees the rupee trading in range of 53.50-55.50/$ going forward.

He sees limited downside in the Nifty and is hopeful of the index being closer to the upper end of the 5,600-6,450 range by this year end.  “We don’t see a huge downside for India as valuations are not stretched. Government’s intent on pushing reforms and fiscal consolidation makes us positive,” he said.

On specific stocks UBS Securities prefers Exide Industries over Apollo Tyres . Among midcaps, he is betting his chips on Federal Bank , Bajaj Electrical , Sun TV and Dish TV . His top pick from the telecom space is Bharti Airtel . Meanwhile, he doesn’t expect USD 1.6 billion impairment to impact Tata Steel materially.( Read More)  

On the flip side, he is not upbeat on pharma player Ranbaxy Laboratories , which has pleaded guilty and has agreed to pay USD 500 million to resolve false claims allegations, CGMP violations and false statements to the FDA. ( Read More ). Dr Reddy’s Laboratories and Sun Pharma are his other pharma bets.

He is also bearish on Jubilant Foodworks because of the tepid fourth quarter numbers. ( Read More )

Below is the verbatim transcript of his interview on CNBC-TV18

Q: Let me start with Ranbaxy which is in the news this morning. It appears the stock might open weak but how would you approach it after the USD 500 million settlement?
A: In the pharma sector this is a name we are not very positive on, our analysts like most of the other names except Ranbaxy. It is partly to do with this but generally we prefer other names like Dr Reddy’s Laboratories, Sun Pharma, etc. over Ranbaxy.

Q: What about Tata Steel that is also in the news this morning because of the write down they had to take. Any material impact you feel for Tata Steel?

A: I don't think there is any material impact because this is non-cash; basically it is impairment of goodwill kind of a thing. However, in hindsight shows they may have probably over paid when they bought Corus. It obviously affects the book value.

Since the cash for this went out quite a while earlier, I really don't think this should have any material impact on the stock incrementally at this point.

Q: Yesterday’s trade deficit data seems to have worried the market. Do you think it has big implications for the currency and also for Indian macro in the eyes of global investors?

A: Crude and gold obviously affect the trade and hence the current account. Clearly, it seems like at a lower price; the demand for gold has actually gone up in India that is what the trade data really shows. I don't think it is really worrying. Our view is that the rupee should be in range of may be 53.5-55.5 that is what the fixed income guys are saying.

Our own economist thinks it will go to 56 over the course of the year and then as growth picks up, it starts appreciating a little bit. I don't think we are unduly worried about the rupee at this stage because I am sure the Reserve Bank of India (RBI) will manage the volatility quite well. We also had the consumer price index (CPI) print, which was at the margin positive. This knee-jerk kind of reaction to data points from the market is something perhaps the investors can take advantage of. But we are not too worried about the rupee at this level.

Q: What is the sales desk saying about flows?

A: Flows is something which is a very complex function of how the rest of the world behaves and as I must have mentioned earlier that this year Japan has been on everybody’s radar. A lot of funds have been underweight Japan so that is where a lot of the money seems to be going. Corporate America is in good shape so money is going there. To that extent the global emerging market (GEM) flows may not have done that well. And within that, India should relatively do well.

So, clearly we have a problem of soft data points right now but at the same time the government has shown some good intent with respect to fiscal consolidation. Even potentially some reforms around subsidies and potentially FDI. So if the government continues to use the Cabinet Committee on Investment (CCI) to clear projects, improve investment sentiment then India should be okay.

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Exide Ind Apollo Tyres Federal Bank
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