Devang Mehta bets on ITC, Marico & Pidilite Industries

Devang Mehta, vice president and head-equity sales at Anand Rathi Financial Services, in an interview with CNBC-TV18’s Latha Venkatesh and Ekta Batra, said that the RBI may hike interest rates by 25 bps on the September 16, which the market has already factored in. However, he added that it is high time the central should end the rate hike cycle now.

Mehta advised investors to go for stocks like ITC , Marico and Pidilite Industries .

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: What you are making of this market rally or the pull back that we have seen in the past two days? Do you think it’s just a correlation to global equities or would you be a buyer for a further upside at this point in time?

A: We have seen deep and rapid corrections that the market can absorb. We saw political embrangle getting resolved over the weekend and we have also seen a lot of valuation support around 4700-4800.

Many times we have seen that the market bounces back from 4700-4800. So at 12.5-13 times FY12 earnings levels, the market always looks quite undervalued. So since the value buying is emerging and short covering has taken markets, then this market can touch 5100 also. So there is some value buying that is emerging at this levels but the low volumes, which we saw yesterday on cash market front, are discouraging.

Q: GDP number has come in as per expectations, it’s 7.7 but the capital formation number is a little bad at 3.5%, due to two quarters of poor growth. How should a market person approach this? Is this indicative of strong growth is the rate hike by the reserve bank more or less factored in?

A: The rate hike is almost factored in and the RBI has still two more factors to see apart from the GDP data that has come today. There is monthly inflation data and one more IIP data that will come on September 12.

So, on September 16, we are expecting a 25 bps hike and the market has already factored in the same. I hope this is the end of the rate hike cycle.

Q: If you have to pick anything, what would you advise an investor at this juncture? Are you approaching a sell on rallies because of the inherent weakness in global markets?

A: Yes, we have been advising caution to our clients on the capital investment side of the market or the capex intensive themes or the companies with higher on the debt side.

We have always been advising them from the last three to six months to be more on the consumption side as Indian consumer goes from necessity to luxury and probably valuations are also aggressive on that front. However, there are selective picks like ITC, Marico, Pidilite Industries, which are fairly valued.

Q: ONGC is down around 4% today and the FPO is expected to be open on September 20. So, what you are making of that one?

A: ONGC has always been a strength of pillar for the market but this is again a classical case that the government announces FPO for a listed company and the company share prices tank. We have seen this happening to REC , PFC and NTPC a number of times.

All these companies had come out with their FPOs at fairly good discounts to the market price. So for a long term buyer, ONGC remains a very good pick at current levels and even if it falls 3-4% from here on, it should be very good accumulate.

Q: You don’t see the market going to 5200 at all in this contract?

A: It’s been a very volatile market, so 4700 to 5200 would be the range for this September series, if at all there are lesser bouts of volatility.

Q: Anything in the mid-cap space that you would recommend to investors?

A: If the rally starts somewhere from large caps, it would be the first to perform and large caps have been hammered completely. We are seeing some index stocks also correcting by 30-35% including BSE 200 stocks, which are correcting by at least 35-40%.

So I suggest being with the front liners, I am not talking about only Nifty stocks but maybe stocks like IDFC , PFC. All these stocks have been correcting big time. So, in the first leg of rally, these stocks would start doing well and midcaps would follow.

Q: Reliance communication is up 5% post that news of CBI being unsure at this point in time. Would you be a buyer of Reliance Communication or would you just stay clear of that one?

A: Since quite sometime, we are not being a fan of this stock and we have a sell recommendation on Reliance Communication. Currently, the valuations justify that it is trading below its replacement value but we would always prefer a Bharti Airtel or an Idea Cellular in this space as we know that sound fundamentals and good results from Idea and Bharti encourage us and make us feel that the telecom sector is going to do well. Bharti and Idea are likely to be market outperformers.

Q: Are you a sell on Maruti ? Do you have fears that the current leg of labor troubles could be a long or a drawn out one?

A: Maruti has this habit of getting into troubles sometime. This is the second time it’s happening at Manesar but I feel that the management will be smart enough to come out of it as soon as possible.

We like Maruti around this level and if at all it corrects more by 3-4%, then it’s one of the attractive stories to buy in current scenario as we know that the festive demand could pickup in the next couple of months. So, Maruti should be an accumulate from hereon.

Q: Any disclosures?

A: We may have discussed few stocks during our interaction, which we as a broking house, might have recommended to our clients and they might be holding them. I do not have any personal positions in the stocks we have discussed.

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