In safe territory till 4900, don't short: Rajesh Agarwal

Currently, Agarwal believes that IT stocks are not a good option. “The problem with IT space is that most of the revenue comes from the US and Europe and we all know that their problems are still there.” However, he is positive on the metals space with a longer term perspective.

Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video.

Q: Just wanted to get your thoughts in with regards to the entire IT space as well as the metals space, which is seeing the maximum amount of weakness today. How would you trade those?

A: The problem with IT space is that most of the revenue comes from the US and Europe and we all know that their problems are still there. So I think IT space is going to be under pressure in the coming days also. Although, there might be some bounce back here and there, these bounce backs should be taken as an opportunity to cut your positions and get out of them. Despite all the fundamental reason and the rosy picture, one should get out of IT stocks.

Within the metal space, I find names like Jindal Steel & Power or Tata Steel to be extremely attractive at this point of time. Yes, they might correct some more from these levels because of market conditions, but one can take a longer term view and start nibbling in some of these stocks.

Q: I have bought 300 shares of Hindalco at the price of Rs 230 and now it is around Rs 145. What’s your advice on it?

A: Rs 230 would be a very long call to take on Hindalco because I don’t think there would be the price target in the next one-two years. But I still think that Rs 180-Rs 170 levels were quite possible on this. The reason I believe this is because the numbers were quite decent in the first quarter. The company is planning an expansion of around three times it’s melting and smelting capacities in India. In India the margins are better as compared to international margins. So I think this is going to improve the bottomline in the near-term.

Valuation wise, the stock is trading less than 1 times price to book value around 12 times price to earning. The downside is limited, so one can hold on to the stock with a target of Rs 170-180 in the next 6 months.

Q: He has shares at Rs 230, which I guess have would have been bought several months ago. Should he average?

A: So I won’t recommend averaging at this point of time because the markets are in a little bad mood. So we have to wait for the RBI policy to come on the 16th after which we can take a call on our next stance.

Q: I have bought 200 shares Reliance Communication at Rs 103. I am not a trader, I am an investor basically, and so what is the prospectus for one-two years?

A: As we all know, the numbers have been pretty bad in Reliance Comm because it has been surrounded by a whole lot of controversies, be it 2G or the high debt the company has. In the near future, I don’t think there is any major trigger in the stock. But the company has hiked its call charges in 19 out of 22 circles and that’s a big positive because the call charges has been hiked by about 20%, which is going to improve the bottomline in the next 2-3 quarters.

The only trigger in this stock can be a stake sale, which may happen in the near future or it may take time. So one has to take a call based on if one is ready to take another price cut of maybe 10-15% from the current price levels.

As far as investment is concerned, I would prefer a Bharti or an Idea in the telecom space rather than Reliance Comm. So I would suggest switching from Reliance Comm to Idea or Bharti .

Q: An otherwise good performer in this pack, Axis bank has struggled with other banking stocks as well. What is the call on Axis?

A: I have a buy call on this. If his funds allow him, he can average these Axis Bank shares at this point of time because the bank has been performing well. In the last three-four quarters, the CAGR has been quite good. It has been a consistent performer not only on the deposit side but also on the advances side. CASA is also at a comfortable level of 40% plus and with a kind of branch network and ATMs this bank has, the valuation of around 13 PE looks quite attractive. So I would suggest a buy on this.

Q: But he is sitting at Rs 1,350 already. Are you saying that he should add and average lower?

A: Yes, he can buy at these levels and average it out.

Q: What kind of a price target you have?

A: Around Rs 1,175 in the next 3 months.