Asset allocation key element in current market: Nirmal Bang

Sectors like FMCG, pharma, IT and private banks on one side have been fairing well while the laggards continue to be power, infrastructure, capital goods and the real estate pack.

"Any sharp dip in some of these more preferred stocks in these more preferred sectors should be used as a buying opportunity," says Irani, adding that he is asking his investors to focus on asset allocation right now.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: The Future Capital deal is expected to be announced today. There are talks of it coming in at about Rs 165 to Rs 170 a share. How would you approach that stock from hereon?

A: Not very positively. This whole group has got its own problems - the stake sale and Aditya Birla Group investing in Pantaloon Retail. This entire group has so many problems as far as the balance sheet goes that I would use these measures as something which possibly were necessary. So some respite here but I am not too enthused to recommend or buy into this particular stock.

Q: It’s a long period dotted with a lot of global activity this month. Is there a way to play this portfolio wise in terms of where you would start to cut exposure to and what you think the safest bets might be through June?

A: The problem as far as the Indian stock market apart from the global factors, the macro headwinds has been the fact that this market has got highly skewed in favour of certain sectors. If you have FMCG, pharma, IT and the private banks on one side you have the laggards or the step motherly treatment that the market has given to power, infrastructure, capital goods and the real estate pack.

There are no triggers to buy into the sharp falls within these sectors or the stocks in these sectors but the same good stocks in the same sectors which have been preferred continue to be good bets. The problem is the valuations in those stocks have been expensive. So I feel any sharp dip in some of these more preferred stocks in these more preferred sectors should be used as a buying opportunity.

Wait for the rally to happen, buy a bit more in your asset allocations. Suppose you want to buy 2% of ITC and the stock is at Rs 220-110 then buy 3%. The stock rallies then sell off 1% and bring down your cost of holding. That is the only thing which an investor can be doing and that is what we are advising our investors to do. So asset allocation has become a key element.

The market on Thursday when Ben Bernanke testifies and whether we have any signs of a stimulus coming, if we have a decent election verdict coming in Greece, if there is a possibility of RBI cutting rates - for all you know we could have a very sharp rebound coming in the market in the second half of June. So a rally is very much on the cards after a sharp fall possibly in the early part of this week.

Whether one should play for this really, the best thing to do is buy into good quality stocks and when the rally comes, sell off that extra weightage which you have bought in the good quality stocks and bring down your cost of holding. That is what I think investors should be doing in this market.

Q: Any thoughts on some of the outperformers and how they may likely perform through this month - things like Asian Paints etc which have outperformance and price performance on their side?

A: We need to accept the fact that the market is always ahead of analysts, so most of these companies, most of these stocks which are continuously doing well those stocks are richly valued. Should one go and buy into them? According to me the answer is no.

If we have further turmoil coming from Europe of if we don’t have too many signs of a stimulus coming in from the US, if we do not have a rate cut coming in June, for all you know some of these good performing names may come down. The ideal thing which an investor should be doing is identify 30-40 solid performing companies which are richly valued right now, put a price against them and if those price come, go and buy into that.

So maybe an Asian Paints , not to buy at Rs 3,800-3,900 but if you give me at Rs 3,500 I will buy it because I see Rs 4,800-4200 coming and ITC at Rs 210. I see a price of Rs 270 coming. Those are the type of stocks, the good performing ones. If they come down or if they falter for any reason at that time an investor should be buying that. At the present levels most of these well performing names look very rich in terms of valuations.

Q: If indications are that we are set for another leg down in the market, where would you take money off the table? In this next leg of a downside where do you think there will be pockets of pressure from the Nifty?

A: I personally feel some of these well performing names like ITC or Asian Paints possibly could falter. Even private sector banking names like HDFC Bank which is richly valued right now even though it is the best performing bank or an IndusInd Bank may falter a bit more. So whether one should take money off the table, the answer is yes. In terms of valuations, they are rich, learn to take the money off the table and wait for a better price to come.