SENSEX NIFTY
Feb 02, 2013, 02.19 PM IST | Source: CNBC-TV18

Bulls may charge before Budget; bet on NBFCs: Dipan Mehta

Dipan Mehta, Member, BSE & NSE, says that one can anticipate some buying in anticipation of a good Budget.

Dipan Mehta, Member, BSE & NSE, says that one can anticipate some buying in anticipation of a good Budget. Generally, we have observed in the past that earnings run in a particular trend, so if the trend is turning for the earnings then this good quarterly number could be followed by two three more good quarters coming through perhaps because of base effect perhaps because of other cyclical factors. If that is the case then it will be the trigger for the markets to rally in 2013.

Below is the edited transcript of his interview to CNBC-TV18.

Q: Last week we saw a bit dip in the markets where the Nifty closed down more than a percent. Is the market is entered into a sluggish terrain where it could be a slow grind till the time the Budget comes up or do you think that this up move will continue?

A: We could be in this particular range for next one or two weeks. The Budget will come at the end of the months and that would get the bulls excited. One can anticipate some buying in anticipation of a good Budget. Inspite of good earnings seasons one should see sideways movement in next 8-10 trading sessions.    

The Reserve Bank of India (RBI) policy was also in line and slightly better than street expectations. The flows in the market are evenly matched; foreign institutional investor (FII) buying is matched by domestic investor selling. Apart from that, Bharti Airtel did not deliver and more or less the markets have run up in past two to three months and maybe consolidating at these levels. However, on can expect some buying to emerge towards the end of the month when the Budget is round the corner.

Q: The one trend that we have seen this earnings season has been that it has been far better than what the street was expecting be it Punjab National Bank ( PNB ), Infosys  and Reliance . Next week we have some big ones that are coming out as well in the runup to earnings are there any stocks that you would be picking up?

A: The earnings season so far has been pretty well and I know it gets ugly as we go along as all the bad results come towards the end of the earnings season. But nevertheless whatever numbers we have seen so far there have been more hits than misses. It is evident that the banks, NBFCs, pharmaceutical companies, select IT companies and most of the consumer oriented FMCG and consumer oriented companies have delivered.

Two wheelers, telecom and the engineering construction group have disappointed and that trend will remain for one more quarter as well. Investors should looking at next three months, should focus on ones which have delivered on the quarterly numbers for December. The Budget always tends to make or break the trend for the next few months thereafter.    

So far, by and large the numbers have been very good. Let us keep our fingers crossed that this could perhaps be the earnings season which could be the turning point where after several quarters of tepid growth we are seeing an up tick. Generally, we have observed in the past that earnings run in a particular trend, so if the trend is turning for the earnings then this good quarterly number could be followed by two three more good quarters coming through perhaps because of base effect perhaps because of other cyclical factors. If that is the case then it will be the trigger for the markets to rally in 2013.

Q: On Oil India offer for sale (OFS). It received a very strong subscription on Friday and some people are recommending a switch out of Oil and Natural Gas Corporation ( ONGC ) and into Oil India because of the run up that ONGC has seen and the good valuations that Oil India has. How would you approach both these names and what would your recommendation be?

A: Most of the PSU oil companies including Oil India are good trading bets. The government has finally got practical about how it is suppose to go about the disinvestment program where it is offering adequate discount. The most heartening fact is that investors in the PSU stocks have made money in the earlier ones and that is bringing more and more investors to apply for future issuances and that is a very healthy and positive sign which means the government is being quite pragmatic about its disinvestment program.

However, from an investment point of view the entire PSU oil sector still remains well under government control and the deregulation is just on paper. The stocks have come off extremely cheap valuations but going forward for these stocks to rally and come off their own and take leadership position, one needs more than just minor tinkering with diesel prices, something pragmatic or major needs to be done, whereby investors are convinced that now these companies will be run on professional basis without government interference and I don't see that happening in the near future.

So, while the rally is present investors can make trading bets, some who have invested earlier in the years could look at lightening up but for long-term investors oil companies cannot be part of the core holding.

Q: You have one idea that you would give us. I know you don't like to generally give trading ideas but as an investment call anything for next week?

A: We are very positive on the NBFCs and Bajaj Finance is the best in the pack, which is again with the usual disclosure that we have investments and recommendation.  

Bajaj Finance looks valued attractively and business model is also liked per se. It is not completely focused only on the auto sector, it has a slightly more de-risk business model compared to other listed NBFCs. NBFCs, private sector banks, pharmaceutical companies and select IT companies that should be the broad canvas that investors should look at and invest depending upon how the performances and what is the level of risk appetite.

 

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