In Feb, Nifty has one-way ticket to 6000: Ambit Capital

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There is no stopping the Nifty in the month of February. Within two hours of opening, the Nifty raced more than 80 points to cross 5,500, a first since its hey days of early August 2011.

Speaking to CNBC-TV18, Saurabh Mukherjea, head of equities at Ambit Capital said the liquidity will continue to flow in February pushing the Nifty through one-way traffic towards the 6,000 mark. He, however, cautioned that March will see the hiccups and investors should focus on high-quality cyclicals having strong balance sheets .

Below is the edited transcript of Mukherjea's interview with CNBC-TV18. Also watch the accompanying video.

Q: Now that 5,500 has been scaled where do you see the Nifty headed? Do you think that the momentum is strong enough for it to scale another 5-10%?

A: The market will keep grinding up in February. The market momentum, investor sentiment and FII flows are the strongest, that I have seen for a good two years. February will be one way traffic, especially given that the core inflation data also worked out in the market's favour. March will be a more difficult and uncertain month, but this month looks to be one way traffic and the Nifty heading towards 6,000.

Q: End of the month we get the GDP data but do things like this worry because that number would be perhaps south of 6.5%. Would these things bother the market at all?

A: You are right in eluding this. Broadly speaking weak IIP data, weak GDP data for at least two more quarters is factored into the stock market now. We all understand the economy is in a weak patch and it will stay here, until RBI turns the rate cycle around in April. Once the RBI starts cutting from March-April onwards it will take 6-9 months for that to turn the economy around.

That's factored into the stock market. The stock market is looking ahead 6-9 months and rallying in anticipation of the GDP growth numbers turning around somewhere around Christmas. We are trying to look out 6-9 months and we are advising clients to buy stocks in anticipation of the economy turning around somewhere towards Q3 FY13.

Q: Any specific sectors that you are looking at or is it more stock specific that you are advising your clients?

A: We are asking clients to increase exposure to cyclicals. So banks, auto, power, infrastructure and real estate. But the one point I must emphasize is that, clients should invest and shift focus on high quality balance sheet in these sectors.

The real temptation to focus on broken balance sheet and if you buy broken balance sheets today you will suffer heavy dilution over the course of FY13. Look at cyclicals, they will give you good upside, but focus on the better quality names, the higher quality balance sheet from cyclicals.

Q: On the index itself you mentioned that 6,000 could not be too far away. So what kind of a strategy would you be flowing for the index itself?

A: I was never a great advocate of buying the index in entirety. It seems to me a quite short sided way of playing the market. My sense is that the best thing to do is reduce exposure to FMCG and Pharma where those stocks are at elevated multiple. Stocks that are at 35-40 times last earnings in FMCG and pharma you should be setting out to them.

You should bring into your portfolio high quality cyclicals, high quality balance sheets in power, infrastructure, real estate, banking and auto. That is the best way to play the turn in the economic cycle. To play the index by itself would be travesty, given how much upside we are looking at this time in the economic cycle.

Q: What about the midcaps? Would this be from hereon more a midcap heavy strategy at all?

A: Midcaps will do well in an economic recovery. We are asking clients to look at select names in the midcaps especially when the midcap themes coincide with the cyclical themes and strong balance sheet themes. My sense is that FIIs and DIIs are already latched on to that and hence strong recovery you see in midcap names coming through.