Ambit Capital's shopping list post Q2 results

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Ambit Capital's shopping list post Q2 results

India Inc has delivered a fairly mixed set of second quarter results, but Saurabh Mukherjea, head of equities at Ambit Capital believes the numbers were much better than what was anticipated.

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

India Inc has delivered a fairly mixed set of second quarter results, but Saurabh Mukherjea, head of equities at Ambit Capital believes the numbers were much better than what was anticipated. "We are maintaining our Sensex target at 14,500 for the moment," he told CNBC-TV18. 

Next up, he said, the markets are looking towards the ongoing G20 meet for clarity on the European Financial Stability Facility (EFSF).

Europe's bailout fund is delaying a 3 billion-euro (USD 4.1 billion) bond sale after Greek Prime Minister George Papandreou's request for a referendum on the rescue pact for his country roiled markets.

According to Mukherjea, we could see a relief rally in the markets if there some clarity on EFSF. 

Besides that, an issue plaguing the Indian market has been the lack of reforms and Mukherjea sees little of it happening in the upcoming winter session of the Parliament.

Commenting stock specific, Mukherjea said, he expects BPCL , Tata Motors and Power Grid to outperform going forward. His other picks among midcaps include TTK Prestige , Eicher Motors and Gateway Distriparks .

He also likes Bosch and FAG Bearings in the auto ancillary space. "I expect ancillaries to outperform OEMs next year," he added.

From the metal space, NMDC remains the only preferred play for Mukherjea. However, he advised avoiding overvalued consumer plays like Nestle .     

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.

Q: You have been consistently skeptical about the market. Has your view changed a bit over the last few weeks as the Nifty has come back to 5300 or you remain quite circumspect still?

A: Whilst at the market level we remain circumspect for variety of reasons such as domestic factors and global concerns, the result season has been more upbeat than we had expected it to be. What seems to stand out is that well run companies across a range of sectors seem to be able to cope with this economic downturn much better than the second rung players.

So in terms of separating the men from the boys so to speak, the result season has been quite encouraging and that's something we will look to build on in the coming quarters presuming the economy isn't going to turnaround very quickly. So it becomes that much more important to look to identify the HUL , the TCS or the Bank of Baroda of the world which seem to be doing a good job of steering the ship through stormy waters.

Q: But do you think this is a temporary period of constructive movements in the market and it will turn again and go back to those 4700 kind of Nifty levels or do you think the market is slowly working its way out of the woods?

A: I think you will see two very different dynamics in play. Through the next year we will have a tough economic climate, I don't think there is much doubt about that, but through that tough economic climate we will see high quality companies being able to hold their own in terms of earnings and their own business prospects.

Distinct from that, I think investor concerns vis-à-vis the global environment and our own economic growth prospects will once again come to the fore. We are going through these waves of relief rallies and then despondency settings and again we are somewhere in between the two phases now depending on how G20 pans out and how the Greek referendum pans out. It might again be either a relief rally, another wave of despondency, but the overall trend of investor sentiment unfortunately will be soft given just the sheer scale of challenge that's facing us both in Europe and India.

Q: What kind of a resolution do you see, if at all, on the G20 next weekend? Do you think it can spark off a big move in the market or still keep us range bound?

A: Clearly if the G20 is able to give the world more clues about where this 1.4 trillion will come from, I think a lot of investors will take a considerable amount of comfort from that. At this juncture, a number of people such as myself are concerned about who will provide this money and why. We all read too much about China coming to the table with geo-political ambition and providing the money in return for some geo strategic gains, but beyond that we are at a loss as to what sort of investor can fork out a trillion dollars here.

So if the G20 is able to provide clarity on that then clearly will be a relief rally in the wake of that. I think what complicates the situation for them is the Greece referendum I don't think they expected to be having to deal with this referendum and having the G20 summit before Greece has made up its mind is clearly going to complicate the situation and reduce the probability of a definitive solution to this 1.4 trillion dollar problem.

Q: What kind of Sensex range do you have now for the next couple of months? In case of relief rally, where could it go to and do you still think if can fall back to sub 15,000 kind of levels?

A: Our 14,500 target remains because we are concerned about the underlying economic position of India and global investment appetite. That being said, if 1.4 trillion dollar is put on the table by say a mixture of China and the Middle Eastern nations, then the Sensex rallying by 1000 points is not unlikely. But beyond a 1000 point spurt on the Sensex is difficult for the market to run away with because the economic news always holds you back. Either the Fed announces a 110 basis points cut in its growth expectations like it did yesterday or our own growth numbers come in softer than expected.

So if you do get relief rallies because of the European situation being stabilized somewhat, the pull back will come from macro economic news either in the western world or in India. So 1000 point rally is probably the top you can expect and on the downside 14,500 is I think where the market will bottom out.

Read on to find out more stocks Mukherjea picks for his portfolio...