Marico, HUL look safe for investment now: Vertex Securities

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » 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 Marico BSE | NSE 01/06/12 Are Mutual Funds betting on Marico? Other Stocks in this news Hindustan Unilever | Esab India | V-Guard Industries | Repro India | Britannia Industries | VIP Industries | Jubilant Foodworks | Ambika Cotton Mills |

Sandeep Rajani, Head - Equity Research, Vertex Securities sees current market levels as safe zone for investments.

Rajani said, Marico , Hindustan Unilever , ESAB India  look very safe for investment. He also finds Ambika Cotton Mills very attractive current price.

He said, "We have already asked our investors to start putting about 20-25% of their money into the so called investment stocks. The horizon is very vital. If you have a three year horizon. I don't think you have much to fear if you are doing your due diligence properly."

Also Read: Nifty to consolidate in 5000-5250 range says Baliga

Below is the edited transcript of Rajani's interview with Mitali Mukherjee and Latha Venkatesh of CNBC-TV18. Also watch the accompanying video.

Q: What is your view on the lingering damage in the midcap space of the broader market. What would you put it down to? Is it panic selling or some other kind of correction that you are seeing?

A: It's not panic selling as yet but, the sentiment is running ahead of the earnings.

Q: Would you attribute it not at all to fears that there could be the SEBI related rules on punishment if margins are not kept enough selling ahead of it and then as shares fall even further, technical factors like pledge shares - those kind of things taking hold of the market because rapidity and consistency with which the broader markets have fallen in the last three days is almost pointing to panic?

A: Let's put the whole move into proper perspective. At 16,600 levels you are around 14 times one year forward with a downgrade already built in. You may have a slight downward revision going ahead. But, let's put it at 14 times one year forward. In extreme pessimistic times you have about nine times one year forward.

In extreme optimistic times it is in excess of 24 times one year forward. At current levels you are in the safe zone for investments. So, the fear factor that you are talking about is basically the sentiment which is cynical. It's running ahead of the earnings now. So to that extent, there is a lot of damage but we are in a safe zone for investments. I don't know about trading.

Q: What about the this fresh bout of selling seen in the banking stocks? Do you think that fresh downgrades are in order because of asset quality concerns or even credit volume growth concerns or is this just the banking stock falling in line with the selling and the panic everywhere else?

A: You have hit the nail on the head. Perhaps the so called expected downward revisions are playing on the mind of the investors. Euro zone is a bit of a question mark going forward. How the next two months pan out and how the agencies rate these Euro zone countries will be a big pointer to the banking stocks going forward.

Q: Where would you start taking that investment call? For a lot of people this 5,000-5,100 zone was what was considered safe which is why I guess people are running nervous because this is looking like a market that has not settled at this level yet.

A: Levels of 5,100 and 4,800 are technical calls. As far as fundamentals are concerned - we have already asked our investors to start putting about 20-25% of their money into the so called investment stocks. The horizon is very vital. If you have a three year horizon. I don't think you have much to fear if you are doing your due diligence properly.

Q: What would qualify as investments ideas right now?

A: Stocks like Marico , Hindustan Unilever , ESAB India , V-Guard and  Repro India look very safe. Ambika Cotton Mills looks very attractive at these prices.

Q: What kind of split would you do between fixed income and equity right now because that has been a big competitor for equity markets - all of this year - the fact that fixed income returns are so lucrative?

A: I would put roughly about 40% of my earnings in fixed income right now.

Q: You have picked up a lot of the midcap variety stocks. Is there anything in the big space where you would look for at least capital conservation at this point in time because we are seeing a lot of injury even to capital, not just gains?

A: Hindustan Unilever to us looks a very safe stock, from that perspective - Marico, Britannia .

Q:  What about the banking stocks? Are they not looking attractive or do you expect more erosion there?

A: We would like to watch this whole space for another one month especially the developments in the European region before we take a call. We are pretty close to taking a buying call on the banking especially the large private ones.

Q: What about infra? That is the one that has got hammered practically out of shape. Do you have any buys at all in that space and then the other one which appears to be the flight to safety - VIP and Jubilant ? Is there anything in that consumption space that you like?

A: In the consumption space we like FMCG stocks. As far as the infrastructure is concerned - we would expect them to follow with a lag once the policy initiatives start all over again as far as the executive's decision making is concerned. There is a big worry there and that is where the sentiment is getting hammered.