Jul 22, 2013, 03.47 PM | Source: CNBC-TV18

Idea cleanest India story, cautious on HUL: Kotak Equities

Sandeep Bhatia, executive director and head of sales, Kotak says the obstacles in other EMs are only the tip of the iceberg, which is not the case with Indian fundamentals, which he sees improving.

Calling Indian fundamental problems as 'self-evident', Sandeep Bhatia, executive director and head of sales, Kotak Equities says solutions for the country's issues too, are obvious. However, the same isn't the case for other emerging markets (EMs), says Bhatia in an interview to CNBC-TV18.

Also read: FIIs pull out $3 bn from Indian capital markets in July

Bhatia says the obstacles in other EMs are only the tip of the iceberg, which is not the case with Indian fundamentals, which are improving.

Meanwhile, Bhatia is bullish and betting big on Idea Cellular . He says the stock could rally to Rs 180. Additionally, Bhatia expects the rupee to trade at the current levels and is cautious on  HUL .

"It is clearly a combination of the fact that everyone is seeking safety and there are a lot of stocks which have gone out of circulation. So right now, we maintain our cautious stance on HUL, we are not pushing people to buy at these levels," adds Bhatia.

Below is the edited transcript of Bhatia's interview to CNBC-TV18.

Q: We were just discussing whether the favoured set in the market of 15-17 stocks can continue to become more and more expensive, what is the feedback you get from your clients?

A: There is clear resistance to buy the same names at higher prices all the time. This is clearly, a very shallow market with not many alternatives, which makes sense.

We just recently upgraded Idea to a 'Buy' today morning. We have always like the name. If one takes a two-year view, this is a business, which will show significant upside from current expectations of earnings, primarily on the back that the domestic Indian fundamentals are improving. More importantly there is a new driver in terms of data revenues, which is emerging. So, we like that name, it has run up.

The quarterly numbers will come on August 1 and if one takes a slightly longer-term view of around two years, one will see a huge play coming through in data. Idea is therefore the cleanest India story that you can buy and we think that the price could move up to Rs 180.

Q: What do you do with Reliance Industries Ltd ( RIL ), how did you guys read those numbers? The first reaction doesn’t seem to have been great?

A: We upgraded RIL before the run up, so we have captured some of the upside, which the stock showed. Right now, we see the price target in the region of Rs 980-1,000, so it needs to take a bit of a breather.

Honestly, with this kind of market, one is grappling for ideas that are making sense both in terms of earnings and a weak rupee environment. So, RIL is a beneficiary here and the valuations are not completely out of the ballpark. RIL fits all these three criterias. So, for large investors, this has been a stock where most of them have been underweight. At the current level, it is still a hold for us and it may take some time before it makes the next move but we still remain positively inclined on it.

Q: When you talk to clients, are you getting the sense that complete rout in terms of sentiment on emerging markets is behind us or is it that people are making some trading gains over here but the mood or the stance is essentially negative on emerging markets (EMs)?

A: I do not think the negative sentiment on EM will go away in a hurry. We have been warning for a long time that when the reversal of the quantitative easing (QE) starts, it will be painful for India and other emerging market countries, especially those which run large current account deficits (CAD). Clearly, that sentiment and that fundamental will not go away. India has a long way to go to sort its macro imbalances. I see continuing to be under pressure. So, I think this is just a trading reprieve, nothing else.

Q: Would you say that for the rupee as well, are precarious funding for the CAD, do you think that will open up pressures for the rupee again after this respite?

A: I think the current rupee fall has let up a lot of steam. It should hold at current levels right now. We are seeing a lot of action from the Reserve Bank of India (RBI) even if that on the cost of some short-term sacrifice on growth. We have seen RBI move. I expect the finance ministry to make further announcements. So, there is clearly a move to hold the rupee at current levels. Let’s hope that holds, because falling rupee is not good news for anybody especially the banking system.

Q: Will people need to make big adjustments on their bank portfolios in terms of exposure to this space and are equity market participants sort of coming around to the view that there could be some rate hardening action soon?

A: It is difficult to say whether there will be a rate increase, but the tight liquidity conditions will remain. It is going to be something, which will play out especially in the next six months. If we can hold the rupee level right now and the equity market holds up with some good luck, we are in a much better position.

If there is another disruption in the equity market or in the debt market, then there will be pressures coming through on the currency. So, the way I see the currency stabilize, we have issues on the macro which need urgent action from both the RBI and the finance ministry.

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