Enabling economic environment looks good: Sinha

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The enabling economic environment is quite good at this point of time. And the market may not look attractive in terms of short-term valuation, but in the long term, it is looking quite positive. This is how market analyst, Jayprakash Sinha assesses the market at the moment.

In the short-term, he does not rule out a correction. But he says it's good that the market cools off a bit and then possibly takes some further gains

Excerpts from CNBC-TV18's exclusive interview with Assistant Vice President of Research at Kotak PCG, Jayprakash Sinha:

Q: How do you read the last couple of days? We have flattened out a bit after the big start to the week; do you think the uptrend is still intact?

A: Yes. Once the stock market has touched the much awaited 10,000 mark, there was a good amount of profit booking. The enabling economic environment is quite good at this point of time. Short-term valuation wise, the market may not be attractive, but on long-term basis we are quite positive on the market.

Q: When you look at the kind of volumes Hindustan Lever is trading at - does it look like purely institutional buying and not so much retail or even trade activity?

A: Obviously, with this kind of volume we do not expect retail buying. It has to be from large institutional buying. A good amount of FII interest is still there. This is because of two things. One, the moderate return expectations. And second, the long-term investment horizon. They are clearly looking at long-term investment. There is no doubt that if you look at the little longer perspective, the Indian market is a place to go.

Q: What is your call on Ranbaxy at Rs 430? Would you buy it now or do you think valuations are expensive?

A: As far as pharmaceutical is concerned, the incremental EPS growth or earnings growth has to be one of the highest this year after a laggard FY05. To that extent there could be some catch up in the prices as well. But purely on Ranbaxy we do not have a call per se.

Q: What do you like in the pharmaceutical space?

A: We are still sticking with the large cap. We are recommending investors to be with the company, which are purely into R&D. We have not given any specific recommendations but we are sticking particularly into the Nifty stocks.

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Q: Canara Bank is 11% up today. What's your take on PSU banks; do you have Canara Bank under your coverage or recommendation?

A: The entire banking sector is under extensive coverage. What we have observed in Q3 is that there is good amount of credit off take. In some of the cases, there has been pressure on net interest margin. But if you observe Canara Bank, they have done pretty well both on the net interest margin and the NII growth front. We have upgraded the stock from hold to buy.

Q: Do you have anything in tea under coverage?

A: Yes. We had Williamson Tea Assam . On the trading side we have definitely told our investors to look for the tea.

Q: Any thoughts on MTNL , Bharti Telecom ? Whether a crunch on margins and revenues will show up in a volume build up?

A: The price war is likely to flair up. Going forward, we are seeing very good amount of growth as far as subscriber base is concerned. Yet, average revenue per subscriber is going to come down drastically and will put pressure on the overall margin.

But clearly there is a trend of increasing net profit. That is likely to continue over a period. There is big fight over providing all kinds of service and retaining clients and maximising APRUs.

Q: What is your view on Ashok Leyland?

A: We have actually a hold recommendation on Ashok Leyland . Though the company is posting good amount of CV growth, margin pressures cannot be negated. When we look at valuations, we find that there is not much of upside from current level. This is despite the fact that there is great amount of attractiveness for both Tata Motors as well as Ashok Leyland. We are seeing other opportunities much better than Ashok Leyland at this point of time.

Q: Anything you like as a commodity play because you made point about tea but any stories that you see out of that?

A: In the tea market, volume is peaking up. But the prices are also peaking up. This is quite contrary. When price moves up from Rs 60 to Rs 71, it clearly means that these companies are going to have a windfall gain. It is because 20% profits one doesn't see every now and then.

Again, we have global market, which is not very conducive at this point of time in terms of production. Hence, there is going to be shortage. To that extent, yes, tea prices are likely to go up. So purely tea producing companies will be benefited. However, such companies, which are buying tea and branding and selling it, will have a material impact on their profit margins.

Q: What is the call on steel at this point?

A: We are not very positive because the kind of inventory build up, which we are seeing gives us a guidance that the prices are not likely to rebound quite substantially from the current levels. That keeps us on the back foot.

Q: What is your sense of the market at this point in this rally that we are seeing? Are you expecting the breadth to slowly start opening up as well because that is what has happened after many days today?

A: In the short-term there could be some correction. We are not negating that. We are on the upper side of the valuation band, if we look at FY06-FY07 valuations. So we would like the markets to cool off a bit and then possibly take some further gains.

On short-term, we are not seeing strength purely on valuation basis. I would expect the market to stay here or cool down a bit before making a fresh move.

Q: Any disclosures

A: Personally, I do not hold any of the stocks that we have mentioned. Our clients could be in some of the stocks.

 

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