Apr 10, 2013, 07.18 PM | Source: CNBC-TV18

Buy below 5200; see auto, metal downgrades in Q4: Edelweiss

Nischal Maheshwari of Edelweiss believes the market will see good support at 5200.

Nischal Maheshwari, head of research, Edelweiss believes the market will see good support at 5200. He believes there will not be much downside from that level, discounting a remote possibility of market correction based on some newsflow.

However, if the market dips lower from the support level, Maheshwari recommends investors to start accumulating.

"With Nifty at 5,200, Sensex will definitely be equivalent to around 16,000-16,500 and it makes sense to start accumulating around these levels," says Maheshwari in an interview to CNBC-TV18.

On the upcoming earnings season, Maheshwari is of the view that IT sector could be the only one to see an upgrade whereas banks, autos and metals will be downgraded.

Also read: FY13 car sales fall 7%; SIAM sees 3-5% growth in FY14

Below is the edited transcript of Maheshwari's interview to CNBC-TV18.

Q: What are you telling your clients? There must be a lot of people who perhaps were buying every time the index went to 5,700 in the hope that support would have held? Now, what are you telling your clients? Are you expecting much lower lows even for investors?

A: Yes. The tide seems to have changed. Politics is overwriting things. So, I believe economic outlook, economic reforms or government actions will definitely take a backseat in this kind of a scenario.

We are telling clients that earlier what used to be 'every dip is a buy', now has become 'every rise is a sell' and then, move to defensives. After analyzing the last four-five elections, it is the defensives, which are worked very well.

Typically, in the six months run-up to the elections, defensives do well and post six months, the cyclicals do well. This is very true given that the volatility increases and there is uncertainty upto the elections. Post the elections, as the certainty comes and there is clarity, since cyclicals have done badly over the last period, cyclicals start doing well.

The same trend is going to be followed. I am not sure about the timeline of the elections but from what I have gathered, there would not be an early election and most likely it is going to be in May. So, we have still sometime to go but this is definitely going to be a range bound market now.

Q: What have you made of the foreign institutional investors (FIIs) sell figure that we have got in the cash markets over the last few days?

A: It is very small number as yet given that they have bought in close to around Rs 50,000 crore during the first two-three months. So, we have not seen any significant move out as yet. So, it is only a Rs 1,000-1,500 crore kind of a number, which is very small given they have brought in such large amount of money. So, we do not see as yet any significant negative from the FII side. These are largely market or ETF funds which go on the flows of the market basically and I think that is what is pulling out the money. So we do not see any serious investor pulling out of India as yet.

Q: What kind of lows are you looking at? The month of September saw the market going from 5,200 to 6,000 in anticipation that a lot will change on the policy terrain. Is 5,200 therefore a good bottom to work with or is this also just a line in the sand and things could get worse before we get to that May and possible certainty thereafter?

A: 5,200 is a good number to hold on to if you look at it fundamentally. I do not see much downside from there. If it happens also, it will be more of a flash. It would basically be somebody who is keen on selling and getting out of it or if there is a panic or some news.

Below 5,200, I will definitely recommend people to start accumulating on India. It is a good number. Even if around 8-10 percent kind of a growth in FY14 over FY13 is taken one will hit around Rs 1,300 of earning for FY14. If one gives it somewhere around 14-14.5 times, which is a long-term average, one still ends up with the Sensex of close to around more than 18,500. So at 5,200 definitely Sensex will be equivalent to around 16,000-16,500. It definitely makes sense to start accumulating. So, 5,200 is a good number to hold on below that it is definitely a buying opportunity.

Q: In which sectors are you expecting downgrades or which sectors are you expecting upgrades in the coming Q4 season?

A: Upgrades may not be much but there are downgrades definitely. I see downgrade in autos, metals and banks. There is a possible upgrade on IT where people do have after their last announcement by Infosys, already upgraded.

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