Jul 22, 2013, 03.33 PM | Source: CNBC-TV18
If valuations for the IT sector come down then it should be a buying opportunity, says Irani. Among the cyclicals, he would bet on Larsen and Toubro and Tata Motors.
Mehraboon Irani (more)
Head -PCG, Nirmal Bang | Capital Expertise: Equity - Fundamental ,IPO
He advises against selling Hindustan Unilever (HUL) although it is overvalued because there are few options available in the market at present.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: What would you buy in IT right now?
A: The IT story is intact; valuation wise they have gone up a little bit too sharply. The problem in this market is there are not too many things to buy; there are very few sectors to opt for and within the sector there are very few stocks to opt for. However, in terms of valuations they have become rich.
So if valuations come down it should be an opportunity to buy because the investment cycle is far from kicking of. Therefore, you have to buy the same stocks on corrections.
However in the midcap IT segment, the stock which has started irritating a lot of people despite decent numbers, and relatively looks undervalued would be NIIT Technologies .
Q: What do you expect to hear from Larsen and Toubro (L&T) today?
A: Last quarter remarks by the L&T management were termed a bit aggressive, but, I think one can expect decent numbers from the company. However, it is a fact that L&T management like most of us had the feeling that the investment cycle would come through in the near future. Now, that announcements have been made on Foreign Direct Investment (FDI), fiscal consolidation, divestments, power sector reforms, fuel price hike etc - the government is trying to do what it intended to do but the fact is time is running out. It is very difficult to expect the investment cycle to kick off now in a hurry because not much money is going to flow in ahead of three-four state elections in the next few months and the parliamentary elections next year.
Therefore, with the investment cycle not going to kick off in a hurry, nothing much could happen as far as the numbers go for L&T in the next two-three quarters besides some government spending happening ahead of the elections. L&T remains the only decent bet in the infrastructure sector for the simple reason that it is the only company which has not shorted its balance sheet in the sector. However, I won’t buy it in a hurry. If I want to take an exposure towards cyclicals, then L&T along with Tata Motors in the automobile pack would remain as a first few bets I would take in the cyclicals because otherwise trying to take a bet on the power and infrastructure capital goods space right now would be terming ourselves as a little too adventurous.
Q: A word on Hindustan Unilever (HUL) and what you would do with that stock after last weeks phenomenal run?
A: Nobody in the market expected what HUL has done. 90 percent of us were advising investors to possibly tender the shares in the open offer but that is exactly what happens with such stocks.
People don't know what to buy in this market -there are not too many sectors to choose from and such type of stocks ultimately are companies which will not come with a begging bowl to you and ask for money as and when the stock price goes up. So with limited supply on hand, such type of stocks tends to get a little bit richly valued or overvalued.
HUL is definitely overvalued for the moment but people have not tendered it so far. So, I wouldn’t advice them to now sell off the shares in a hurry because the fact is there are not too many options available in the market.
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Ashwani Gujral of ashwanigujral.com is of the view