Expert stock/sector picks in these markets

Excerpts from Closing Bell on CNBC-TV18 Watch the full show » RELATED NEWS Nifty closes with modest gain ahead of expiry; BPCL up 6.9% 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 Nifty BSE | NSE 30/05/12 Are Mutual Funds betting on Nifty?

Q: How are you calling the market between now and the year-end because there seems to be a little debate on the market whether it can build on its recent gains?

Kumar: In the near term say upto the year-end, we expect the markets to remain rangebound and there are reasons for saying so.

If you look at the liquidity environment, it is quite benign right now on one side. But on the other hand there are two issues. One is valuations are somewhere above the fair value zone. And secondly we are seeing a plethora of issues hitting the market.

In fact in the last six to eight months while almost USD 15 billion of FII money has been poured into this country, almost an equal amount has also been raised through QIPs, IPOs and FPOs. So that is the reason why we would tend to believe that the markets are likely to be rangebound  as far s the index is concerned.

Q: What is your perspective going into December on the market?

Gubbi: This is going to be a tricky call in the short term. From a fundamental perspective, all of us agree that valuations have stretched themselves. But we are also agreeing on the point that liquidity is excess on the global markets and we will continue to see flows.

There are two schools of thought here; we have seen a whole host of hedge funds and other funds underperforming and waiting to play catchup. For them what will be useful is a good 10-15% correction before they start buying in again.

Another school of thought is that there could be a rally before Christmas for those guys who are willing to cash-in on realized gains and book out a nice bonus before Christmas. Whichever way, it's going to be a tricky call and fundamentally we think that the long term India story is still intact.

And the number of plays which are attractive, from a short-term perspective, beta is hard to play from these levels. In terms of alpha we are looking at a few stocks which have underperformed in the recent rally particularly the likes of Pantaloon, On Mobile, Patni Computers although hasn't underperformed it is still trading at a significant discount to the rest of the sector, there is Edelweiss of the brokerage lot again with a discount and has underperformed.

So, these are the few stocks which we think you can play, which are backed by good management teams and one can play in the interim when it is going to be a tricky market play.
 
Q: You are a longer-term investor- how are you positioning yourself, are you building cash levels as the market rises higher even from these levels?

Kumar: As of now, we believe that the liquidity environment is likely to be very benign so long as the data points that are coming from the US economy remains mixed. In this context what we are doing right now is maintaining really low liquidity levels because the environment remains benign.

At the same time we are actually remaining invested in businesses where we see visibility of sustained earnings growth and where in the event of any liquidity withdrawal, the fundamentals of those sectors would remain intact.

Also what we are doing is we are positioning ourselves much more decisively in the domestic plays rather than the export oriented plays. With these two strategies in mind, we are actually positioning our portfolios.

Q: One concrete indicator of the market exuberance has been the entire foreign institutional investors (FII) flow picture and we are seeing that the interest has dipped a bit. Is that little bit of a concern for you?
 
Gubbi: No I do not think so. Like I said earlier on this show, there are still a whole host of funds with cash to be invested. One school of thought says that perhaps some of these funds have underperformed the market in this rally and feeling the pressure, they would like to come in but they perhaps would wait for a small 10-15% correction before they can play catch-up.

But at the same time you could be looking at funds who could be looking to take profits before the end of Christmas and that could put pressure on the markets.

Otherwise, longer-term picture, we think FII flows shouldn't be a concern as long as US monetary policy and most of the Western central banks remains loose. The unemployment factor being the biggest driver there despite growth showing up, we think central banks will remain cautious in terms of tightening policy. So, that should keep the liquidity environment free as of now and FII flows should continue.