Like infrastructure, power and financials: Motilal Oswal

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 09/02/12 Are Mutual Funds betting on Nifty? Other Stocks in this news DLF | Hindustan Construction Company | Indiabulls Financial Services | Kotak Mahindra Bank | Reliance Infrastructure | Tata Power Company |

Manish Sonthalia of Motilal Oswal Securities is positive on mkt though a correction of another 5-7% may be seen which will be on account of FII selling. He adds that there may be no fresh allocations to EMs this year though more FII allocation will be seen in January. Investors should remain invested in both frontline and midcap stocks, he says. He is bullish on infrastructure, power and financials.

 

Excerpts from the exclusive interview with Manish Sonthalia:

 

Q: How worrisome is this fall? We are actually 10% down from the recent highs of 20,000 plus, do you think this is yet another hiccup that the market will just take in its stride and target 20,000 yet again even before 2007 is out?

 

A: We clearly believe that this is just a correction. Even if you see in the emerging markets space, India has relatively outperformed rest of Asia. We believe that this selling that we are seeing in the markets as of now is more on account of year end profit taking by FIIs who are sitting on a huge amount of profits

 

We believe that January is going to be a good month, even if December is relatively subdued. In January, we are going to see a lot of fund flows again coming back into the emerging markets.

 

The whole problem is with the dollar and even if the Fed does not cut rates on December the11th, they would be under extreme pressure to cut rates in the month of January. Then, you will again see the cycle of fund flows moving into emerging markets.

 

The key sectors to really watch out for are infrastructure, power, financials and real estate. These sectors would relatively outperform the rest of the markets. 

 

 

Q: Do you think there could be further downside, since you raised the point about FIIs pulling out end of the year? Do you see a further 5-10% fall from the current levels on the markets?

 

A: 18,000 on the Sensex should relatively hold, given the fact that domestic liquidity is ample out here. Even if we see some pull out by the FIIs, you would see domestic money moving into stocks given that stocks would have corrected and everybody wants a share of all these hot sectors. So, clearly, we don't see the markets falling below 18,000 in any case.

 

Q: In that case you sound like you would be a buyer on dips, what kind of stocks would you look out for in the heavies and more particularly in the midcap space?

 

A: We are quite overweight on the power, infrastructure, financials and the real estate sector. Some specific names in these sectors in the midcap space, particularly in the infrastructure space, could be Hindustan Construction where valuations are quite reasonable, you have this Lavasa project valuations and you could see new flows coming on that space. So, the SOTP (sum-of-the-parts) valuations could be significant percentage from the current levels. So this is one relatively safe stock.

 

In the real estate space, we like DLF . In the financials, we are more bullish on the financial services space, given the fact that you have appetite for brokerage stocks etc. We are quite optimistic on Kotak Mahindra Bank and Ibulls Financials . These would be some of the names. In the power space, we are bullish on Calcutta Electric, Reliance Energy and Tata Power .     

 

Q: One final word on few stocks, Deccan, the entire Essar pack and today's listing Religare?

 

A: We have not specifically looked at Religare. But one thing is pretty sure that financial services space is going to grow by at least 25-30% over the next 2-3 years. So, the high multiples that you are seeing on these stocks are mostly likely to be sustained going forward. We assume that whether the markets are up or down, the growth in these companies would come about. You can take a Kotak Mahindra Bank or an Ibulls Financials, even though the valuations look slightly up. But I think these valuations could be sustained going forward.

 

As regards Deccan Aviation , I think the management had said that at this point in time, they are not looking at a reverse merger between Kingfisher Airlines and Air Deccan. Even if that was to be the case, given the fact the promoters own only 60% of Deccan Aviation, I really don't think that the swap ratio is going to be in favour of Deccan Aviation as it is a losing industry. So, clearly it doesn't warrant an investment in the stock particularly at current levels.