Emkay Global bets on IRB Infra, Bajaj Auto, eClerx

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 IRB Infra BSE | NSE 30/05/12 Are Mutual Funds betting on IRB Infra? Other Stocks in this news Bajaj Auto | Hero Motocorp | TVS Motor Company | eClerx Services | Hexaware Technologies | Jubilant Foodworks | VIP Industries | Bata India | Kajaria Ceramics | Siyaram Silk Mills |

Anish Damania of Emkay Global believes that the recent rally of the market was due to FII buying. "As soon as the FII buying subsides, the market goes lower," he tells CNBC-TV 18. Hence, he says that this rally may not actually benefit the market.

He is bullish on IRB Infra , Bajaj Auto ,  eClerx and Hexaware

Below is a verbatim transcript of his interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV 18. Also watch the accompanying video.

Q: 5,623 on the Nifty, it has been a very fair and huge run that we have seen on the market till now. Do you think there is some more steam to go on the upside or do you think we will pause now for a bit?

A: I think if you see the last three run-ups we have seen these run ups coincide with Foreign Institutional Investors (FII) buying during that time frame and as soon as the FII buying subsides, the market goes lower. So till a time FII buying continues, probably we will see some momentum in the stocks.

However that is something which I am not able to forecast as to how long this FII buying will continue. But we have seen that in each of those three rallies, FII buying has stopped at some point and the market has drifted lower than the average price at which they had bought during that rally. So I don't know whether we can call it a suckers rally or whether it is a rally where they will benefit from.

Also Read: Forefront Cap positive on auto sector, bets on Bajaj Auto

Q: Automobiles, the numbers that came in at least for the two-wheelers were clearly a very good surprise even the four wheelers with flat sales year-on-year and flat actually marginally on the green, but a bit of a positive surprise for the markets. Where do you stand on auto stocks at this point in time?

A: If I were to look at it clearly the four-wheeler stocks once were you will first start to see the pain. If GDP growth continues to get revised downwards then we will see its impact on the commercial vehicles segment as well. So in terms of four-wheeler stocks or let us say autos industry though there will be a cyclical impact. But one of the bigger advantages of this industry is that it has a lot of cash on its books. So to that extent it always cushions a cyclical fall.

This market has about been stocks which are not debt laden where cash - and they generate a reasonable level of Return On Equity (ROE). So if I start seeing a growth even if it is 10-12% probably those stocks will do well. So, in this the two-wheelers would fit the bill better than the four-wheelers.

Q: The reason we ask you this is because generally when the market is in the lower end of the capex cycle and the higher end of the interest rates cycle, a lot of sectors like this fundamentally look quite well priced. Apart from the auto space anything else that you like in infrastructure and with respect to specific stocks anything that catches your attention?

A: In the infrastructure sector the stocks that need to be picked up are ones which generate cash and are able to service their debt very well. So one of the stocks among which we cover is IRB Infra . Whatever be the status of the projects in terms of the IRR expectations from the new ones, but at least the old ones which is the substantial portion in their portfolio is generating significant amount of cash.

Significant enough not only to service debt but also to generate or return over and above that. Today that portfolio is giving them an average ROE of about 21-22%, if that is the case, some stocks like these is what we would like. So IRB is probably one of our topmost choices in that sector.

Q: You argued why you would prefer the two-wheeler space, which would be your favorite among the top three, Bajaj , Hero Honda and TVS ?

A: Clearly we are favoring Bajaj at this point of time.

Q: Any target price you have in mind?

A: I don't remember the target price. But we like to see in this market is that the stock will outperform. I would reckon that the stock will outperform more than 10% in this kind of a market.

Q: Is this just a trading bounce or rather a sentiment bound that we are seeing in midcap IT ahead of the earnings season or do you think there is some more meat to this rally?

A:  Investors are looking at stocks with cash little bit of growth and value, so if that is a combination which IT midcap possesses then I don't see this as a short-term bounce. If this would continue through the year, and you would see bouts of probably bigger rallies followed by some correction but it will be more correction in nature where they fall. So I would say midcap IT looks okay enough.

Q: And what are your top 2-3 picks in midcap IT space?

A: We like eClerx and Hexaware .

Q: Has the market run its scores on all those concept stocks, we saw of course the rally was led by Jubilant but we saw a goodish amount of rally coming into the Bata and the other concept stocks as well. We just spoke to the VIP Industries chap, you are seeing a decent rally in that stock, anything in this consumption theme that you think still has money to be made or do you think those who own that stock should really book profit now?

A: I don't know about the stocks which youmentioned we don't cover them.But if I look at the broader theme, Jubilant Foodworks or let us say we cover Kajaria Ceramics for example and the stocks which you just talked about Bata, VIP, the common characteristic among them is that they are all consumer stocks with low capex, good brand, available at reasonable valuations.

There is a growth element which could be a little bit structural in nature for them, so all those kind of stocks have basically done very well. So you will see likes of these and probably similar types of these stocks attract attention. Siyaram Silk is what comes to my mind.

So clearly the theme is more to do with the brand. The company should have reasonable brand, the company should have a 10-15-20% kind of growth rate looking reasonably okay for next two- three years and available at reasonable valuations. Since the choices are limited, people are moving towards identifying these stocks as the ones which will give them alpha.

Q: Just one final word, we talk about a lot of these stocks and price movement but the volumes have been so dismal, what is the sense you are getting in terms of retail participation if at all, because retail high net worth individuals (HNIs) had been out of it for so long, now that the confidence has improved a little bit you sense that part of the market coming back in?

A: To the extent which I know about our retail business and I am not seeing a lot of retail participation either on the short side or on the long side.