Defensives to drive rally in near-term: Anand Rathi Fin

Excerpts from Markets Midday 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 Reliance BSE | NSE 30/05/12 Are Mutual Funds betting on Reliance? Other Stocks in this news Axis Bank | State Bank of India | Jagran Prakashan | Cox & Kings | Engineers India | Punj Lloyd | Jain Irrigation Systems | Shree Renuka Sugars | Ashok Leyland | Tata Motors |

Devang Mehta, Vice President & Head - Equity Sales, Anand Rathi Financial Services in an interview with CNBC-TV18 said the market could be driven by a lot of events in the next 10-12 days. "The EGoM meet, May inflation figures, IIP data, and the RBI policy meet are going to be crucial and will make market more volatile," he added.

He further said that people are not yet very confident about what to buy and when to buy. However, he said that a lot of defensives are coming back in action. "Low EBITDA as well as the defensive would drive the market rally in the next few days to come," he added.

Below is the transcript of his interview with Anuj Singhal and Latha Venkatesh of CNBC-TV18. Also watch the accompanying video.

Q: What have you made of this recent weakness which has clipped in some of the banking stocks like Axis Bank and State Bank of India and that's clearly impacting sentiments?

A: My sense is that rate sensitives are not going to be the flavour of the season for at least some time to come. It seems that there are lots of headwinds still left. It could be driven probably by a lot of events in the next 10-12 days. The EGoM meet, May inflation figures, IIP data, and the RBI policy meet are going to be crucial and will make market more volatile.

Q: But basically what have you made of the way the markets are headed? Are you getting a sense now at least that the bad news is over, that India's rank underperformance in 2011 is probably at an end or do you think we are continuing to meander between 5,300-5,600 thereabouts?

A: It can be the beginning of the end, somewhere at least we could be towards the peak of the interest rate cycle or the inflationary cycle. A lot of headwinds and the bad newsflow have not yet started coming or started stopping rather. A lot of political turbulence also happens. So, all these things are taking a toll on the market.

People are not yet very confident that what to buy and when to buy. A lot of defensives are coming back in action. Low EBITDA as well as the defensive would drive the market rally in the next few days to come.

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Q: What's your view on Reliance because that's one stock which is not moving anywhere? In fact, it's been quite week. A couple of days it tries to move up but then again 930-940 we are again seeing selling pressure. What's the call here?

A: It would be surely a long-term buy. But people will have to be a lot patient because it's not that that Reliance is going to be always picked up or cherry picked by lot of fund managers. So for Reliance one needs a lot of patience. Maybe two- two and half years down the line the stock could do well.

The stock only has the KG-D6 hangover. People were expecting a lot from the AGM which was not to be and it is never to be in the AGMs normally. It's not announced what people are expecting. Reliance for one and half - two years could be targeted for Rs 1,240 type of a target.

Q: Results season well and truly over. Any of the midcaps that you can remember where you were surprised by the results where as a house you all have upgraded the stocks for the full year?

A: We did like not large cap exactly but the results of Engineers India as well as stocks like Jagran Prakashan and Cox & Kings . Now in this type of a market scenario we know that large caps as well as high beta stocks could be a little difficult to probably get into.

These stocks can act as a different themes. Stock like Cox & Kings is doing very well, their travel theme in India, the business, the leisure tourism is gaining ground with good numbers. It is also backed by sound fundamentals, so Cox and Kings can do very well.

Also another stock I would like to highlight is Engineers India . This stock has done very well since the last 35 years. It's providing engineering and related services to almost all Industries like petrochemical, oil and gas, Infra and it is also expanding into city gas distribution and fertilizers.

So, this stock around this valuation seems to be compelling valuation. It's a compelling buy  trading at around 14-15 times its FY12 and FY13 earnings. We would like to have a potential price target of Rs 350 for Engineers India.

Q: What about some of these stocks which are seeing second round of selling something like a Punj Lloyd which is down 4%, Jain Irrigation which is down another 2%, approaching those three months lows. Any of these stocks you track would you like to recommend?

A: We do like Jain Irrigation. Monsoon has already set in and a lot of such themes like fertilizers or something like a micronutrient that has to do with micro irrigation all this could do very well. But for Punj Lloyd we need to see the results for at least one or two quarters because it's always been the case of promising a lot and not delivering on that front.

Q: Just pull-up EIL, actually as you were speaking we were looking at the EIL chart. It's seen a fascinating gain in the past few days. Maybe we can pull up 1 month of EIL, not entirely. It started well today but even the 1 month of the chart was as low as Rs 262 sometime back and now at Rs 283 within a week or so. Is there any price target that you could remember? It's done a lot in the last couple of days.

A: Yes, we do a price target of Rs 350 for a one year horizon.

Q: And finally today autos stock performance, the Ashok Leyland numbers have disappointed quite a few people. We saw last week Tata Motors not doing too well. Anything in that CV numbers which wants you to take a larger call on which stocks you may avoid or not avoid?

A: We know that the CVs would be in tremendous pressure still the interest rate scenario could be bleak for the next three- six months. It can have a toll on at least the sales numbers for the CVs. So, I guess Maruti and Bajaj Auto would be a better picks for the long-term because it dependencies is not in the CV per say.

Q: Just wanted one word on sugar stocks, especially Shree Renuka down about 3.5% today?

A: Not much fond of this space purely on fundamental reasons though technically the stocks could do well. But purely, on a fundamental basis I don't think the cyclical stocks would command a lot of valuation premium at this point of time at least.

Disclosures: The stocks that I have discussed might be our clients might be holding them and we would have been recommending them. I don't have any personal positions in the stocks that we have discussed.