Market looks positive in the long term: Arora

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Sandeepa Arora of India Infoline  says that there is still some upside left in the market. She is positive on the market over the long-term.

However, it is difficult to say whether the Sensex will achieve 10,000 levels now or post the correction, because result season is coming up. Any negative surprises there could bring down the indices, she adds.

Excerpts from an exclusive CNBC-TV18 interview with Sandeepa Arora:

Q: There is a possibility of 10,000 levels fairly soon. Do you think markets headed up even from here?

A: There is some amount of upside still left, but it is very hard to give targets in the short-term; although we are very positive on the long-term. It is difficult to say whether we will achieve 10,000 levels now or post the correction, because result season is coming up. Any negative surprises there could bring down the indices. But having said that, the mood continues to be positive. FII flows are phenomenally positive. Therefore, there seems to be no sign of concern as such, on fundamentals.

Q: Is there a sense of frenzy leading up to that 10,000 levels expectation?

A: Not so much. If one looks at all indices, PE valuations and the Nifty as such, then we are still quoting at about 14 times 2007 earnings. Therefore, I do not think that there is a frenzy as such. After a long time, we have seen some small caps and midcaps move up. But it is very selective and restricted to fairly fundamental stocks. I am sure that there are some stocks that are moving up just because of the momentum, but investors have known that one should be cautious on those. But as such, I do not see a frenzy. Infact, the whole rally has been slow.

Q: CLSA's earnings report has just come out on IT and it is expecting almost a 10% sequential revenue growth and 12% profit growth for frontline IT stocks. Are there any chances of a dissapointment?

A: I do not think so. Infact, this quarter particularly looks to be a very promising quarter. I think that results will not disappoint. We have seen a lot of IT stocks rally today and that is on the back of good result expectations. I do not look at that as a disappointment. Infact, I think that IT is one of the sectors that we continue to be bullish on. Investors should stay invested out there.

Q: Would you buy Satyam at Rs 770?

A: We continue to be positive on Satyam , Infosys and Wipro . Among midcaps, we continue to be positive on Visual Soft .

Q: What do you like in Visual Soft?

A: The news that we have seen on the company, i.e, the acquisitions that it is making and the new businesses that it is getting into-all of that seems to be positive. We believe that the stock is now due for a re-rating. Therefore, we are looking at a target of about Rs 325-Rs 330 on that stock. It looks positive for next one year or so.

Q: Would you buy banks now or are you cautious there?

A: There is a slight caution there. As far as banks are concerned, one needs to be a little more selective. We have seen private sector players move up very significantly over last two three months. But we have not seen PSU banks perform and that is also because of the fact that last quarter's results were extremely disappointing. Therefore, there is a lot of concern on numbers of the PSU banks.

But among PSU banks, there are two stocks that one could look at. One being PNB and other one is Union Bank . These two stocks seem to be very positive. In the last one or two months, State Bank of India has been disappointing.

Q: How are you positioning yourself as a brokerage before results or telling your clients to position themselves? Where are you bracing yourself for positive surprises and for any kind of shocks?

A: The banking sector is where we would brace ourselves in terms of negative surprises; particularly PSU banks because people build in a lot of expectations over there. QoQ, we have seen some disappointing numbers from PSU banks. So that is one area where we may see some disappointments.

However, positive surprises could be there in the construction sector and the engineering sector, where we see a lot of positive news. If one is looking at the capex cycle over next two to three years, then results there will be on track or maybe a positive surprise. In the IT sector, some stocks could give a positive surprise because last quarter, we had seen the rupee depreciating. We are very positive on these three sectors particularly; but one should be cautious in the banking space and stock specific.

Q: What are your views on the sugar space? Momentum is slowing down after that heady run in the last couple of days. Do you think it is done for the moment, or is it just pausing?

A: I think it is just pausing. Infact, sugar is one of the few sectors that we have been bullish on, since the last couple of years. Therefore, I think that it is just a breather in the rally. I think that the rally will continue over the long-term.

We like DCM and Dhampur Sugars , both of them look very attractive. Bajaj Hindustan is one of the top picks. DCM Shriram is one stock that we recommended since it was at Rs 100 levels and our target over there is Rs 200. It also looks very interesting. Dhampur also looks very attractively valued over the long-term. I still think that we will see another 20-30% upside over the next one year.

Q: What about Tata Motors, how did you read their monthly numbers?

A: Monthly numbers of the company are in line with expectations. We have not seen any positive surprises from Tata Motors as such. We have been always cautious on this stock, although the stock has performed very well. If one is looking at the valuations, then the entire business quotes at 10 times FY07, which is not very expensive. From that perspective, it looks like a good "hold" at the moment. QoQ, Tata Motors is the stock that has disappointed sometimes. But in this quarter, we were expecting numbers in line with expectations and they are at the moment in line with expectations. 

Q: What are your views on Tisco, where do you stand on that stock at Rs 386-Rs 387 levels?

A: I would be a little cautious on this sector, although Tisco is the best bet in the steel sector. But again one may see some disappointment because we are seeing the steel sector give a little bit of downturn now. Therefore, our advice would be to reduce exposure to steel and move into stocks where there is more visibility. The visibility in the steel sector is not very clear now. We see more visibility in other sectors like engineering, capital goods, and construction. Therefore, our advice would be to pare down exposure to steel, not necessarily Tisco; but other stocks. One should move into other sectors, which are showing far larger growth.

Q: What have you been telling your clients on Reliance?

A: We have always asked our clients to hold on to Reliance . We never had a negative rating on the stock. I think that clients should hold on to it. People will now get the benefits, once the demerger goes through and one will get the stocks of the other companies.

Q: Would you like to hold the entire pack?

A: Yes, it makes sense to take advantage of the whole pack and the businesses are doing very well. Therefore, we would not advise clients to move out of Reliance, not yet.

Q: Are there any new midcaps that you have been pushing to your clients in the last few weeks?

A: Era Constructions looks to be on a very solid ground. When the company came out with the IPO, people were talking about expensive valuations. But the kind of order books that it has currently, is close to around Rs 7600 crores. We see a three-year visibility on the stock. I think that this stock is due for a re-rating. I think that it has been doing very well for the last couple of days. So we put a "buy" on this stock at around Rs 120-Rs 130 levels and it is trading now at Rs 180-Rs 190. Our target is close to Rs 225. We are positive on this stock and I think investors should buy this stock.

Q: What do you think about Tata Chemicals ? Do you still like it after the rally?

A: Yes, although our short-term target for the stock has been achieved in a very short while. But our view remains positive. We still maintain our rating and it is still a "buy." I think that people should hold on to this stock.

The company's global acquisition has been the trigger for this short-term rally. That is in line with what we were expecting over the next few months. I think one should hold on to the stock.

The other stock we had mentioned was Gujarat Heavy Chemicals . That also looks good over a long-term. At the current levels, even today GHCL looks like a good bet; but from a slightly longer-term perspective.