SENSEX NIFTY
Apr 26, 2013, 12.40 PM IST | Source: CNBC-TV18

Cos with reworked balance sheets can offer mega gains: CIMB

Even after a strong market pullback on Thursday, Devesh Kumar, India Head, CIMB does not see any major improvement in investor sentiment. He feels market has already factored in most of the macro related news and a 25 bps rate cut by Reserve Bank in May policy.

Even after a strong market pullback on Thursday, Devesh Kumar, India Head, CIMB is not too hopeful for the near-term upsides. Though he sees Nifty touching 6000 briefly, he believes it can go downwards. However, for the longer term, Kumar advises to look into companies with restructured balance sheets and improved assets.

Also Read: Mkt to be choppy; opt to sell in May and go away: Sukhani

He does not see any major improvement in foreign investors' sentiment either. Kumar, in an interview to CNBC-TV18, says foreign funds are still trying to figure out winners and are not in a big hurry to park their money in India. He feels market has already factored in most of the macro related news and a 25 bps rate cut by Reserve Bank (RBI) in May policy.

Kumar suggests caution during stock selection. “If one cannot do stock selection then playing broader market may be somewhat risky for short-term,” he adds.

Below is the verbatim transcript of Devesh Kumar’s interview on CNBC-TV18

Q: The market has rallied quite a bit because of the fall in commodity prices. Do you see more upside from here?

A: It will be a mixed bag going forward and most of the macro related news is already in the price so some more upside, but that is in the short-term. We are positive for longer term and feel that if one takes a one-two years view, then improvement in macro situation will lead to some more improvement for various companies. At this point of time in India there are a quite a lot of risks at company level.

Most of the foreign flows are coming through top down exchange traded fund ( ETF ) money and the ones who are bottom up are still trying to indentify the winners. Downside risk is limited, but at the same time at specific levels many big time risks are there and a couple of bankruptcies still continue. One should be very careful in this market while doing stock selection and if one cannot do stock selection then playing broader market may be somewhat risky for short-term.

Q: What did you pick from last week, have these ETF inflows increased, have they just started resuming putting capital into a market like India? What is the nature of their activity in the last couple of sessions?

A: On the margin, there has been a positive shift in ETF flows because of improvement in macro factors and that has been seen. Overall, we have not seen any marked improvement in sentiment and people are still watching and are not in a hurry to enter Indian market at this point of time.

Q: What kind of market range are you predicting through the course of this month?

A: In near term, around 6000 levels should come or it will be much lower. However, for longer term, through informed investors people should start putting money. The trend that we would see for next two years, if one wants to make big money, has to play on restructuring. Many companies that are quite cheap at this point of time, are being punished because of the balance sheet.

Companies that have good quality assets and can restructure their balance sheet will provide handsome return. Also the ones that have good businesses, where they can get some inputs in management from larger companies operating globally such as Jet-Etihad, there again some money can be made. A number of companies, not very large number but size wise, could be significant who may find it difficult to turn around and they will create a big risk to investors and that is why banking stocks will also be under pressure because people are still suspecting pressure on asset quality.

Q: What are your expectations from the RBI next week, do you think they will just oblige with 25 bps which is consensus now or is there an outside chance of 50 bps?

A: They will maintain 25 bps and will keep giving this in small doses rather than give you a big one. 25 bps is already factored in the price, therefore, I don't see that RBI policy will have much impact on the market.

Q: What kind of action are you seeing in some of the high beta pockets amongst the investors? Are people interested in buying real estate and infrastructure or was it just a tactical move given the market rally?

A: In that space one has to be very selective due to the quality of management. If you look at order book and also the balance sheet, all three are diverse in that entire space. But, the time to pick the winners in that space has come more so in infrastructure and capital goods. In real estate, it will be again very specific to companies having exposure to the right locations and having the right balance sheet. So, time to look at the space has come but not with a short-term view, it will be for a longer term.

Q: What do you think is the biggest risk to this market?

A: Locally, some bad news on corporate front in terms of their cash situation, their balance sheet distortion so that is the biggest risk. I don't see politics as a big risk here now because things cannot go any worse here. We have been living with coalition since last 10-15 years so that will continue in similar fashion and is not going to give a shock.

READ MORE ON  market, pullback, CIMB, RBI, macro, ETF

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