Jul 05, 2013, 06.07 PM IST
At Prabhudas Liladher they have a buy on Infosys and expect it to touch levels of Rs 2800-2900 in a year or so. The change in management and rupee depreciation will help Infosys, says Bhat.
Dilip Bhat, Joint MD, Prabhudas Lilladher is of the opinion that market will remain vulnerable to the downside as he expects volatility to continue unless foreign institutional investors come back to lend some kind of stability.
"By and large, the IT companies will still be a reasonable sector to invest even from the current levels especially some frontliners like Infosys, Wipro or even second rung stocks like NIIT or Mphasis ," says Bhat in an interview to CNBC-TV18.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: What is your call on the market? Its been very volatile but for last couple of days we have seen some gains now coming back in the market. Would you be bullish or bearish at current levels?
A: It must be said to credit of the market that despite lack of FII support and in spite of all the fundamentals that we talk about which seems to be very pathetic at the moment, markets have held on very well off late. This rally also is a little surprising because this is against a backdrop of a rupee depreciation which continues to pinch the foreign investors the most. So, having said that, my only worry is this volatility will continue in a big way for some time unless and until foreign institutional investors (FIIs) really come back into the market and lend some kind of stability. Otherwise markets will remain vulnerable to a downside, possibly a deep correction. So, that is what is possible if this volatility continues in the absence of the FII support.
Q: Next week is Infosys results and we did have some brokerage commentary from the likes of Credit Suisse, etc where they are finding some relatively inexpensive IT stocks and picking them up because of the prospects of the rupee depreciation the positive impact on the books, etc. Would you buy any IT names right now and what would your expectation be from Infosys?
A: As far as Infosys is concerned we have a buy on Infosys at the moment. If one were to be ready to withstand the volatility in the next one or two quarters, even if we are talking about three to four quarters which is about a year or so Infosys has all the potential to touch Rs 2800-2900.
The change in the management will help and rupee is also going to do its bit. Also there is going to be some change in the overall stance of the management as to how to approach this business.
By and large the IT companies will still be a reasonable sector to invest even from the current levels, especially some of the few frontlines like Infosys, Wipro or possibly in the second line something like an NIIT or Mphasis .
Q: What do you do with a stock like Lupin which keeps making new lifetime highs; would that still be part of your portfolio?
A: It is difficult to ignore Lupin , despite the valuations at which they are being traded because every year, quarter after quarter we see the year-on-year growth being phenomenally good. And they are in a very sweet spot. Therefore, despite the valuations being very rich, I would still think that Lupin is something that we must still back. There can be reasonably 18-20 percent depreciation one can expect over next one year or so.
Q: The biggest gainer from the midcap index this week albeit on a very low base is Firstsource Solution ; it’s up 30 percent this week for reasons best known to all of us. Would you advice buying the stock now?
A: One should wait for a while. We are yet to see a sustainable turnaround in the company, and I think the repayment of the loans is yet to materialise in a big way. So, I would still wait for that.
Q: How would you play some of these upstream names now. We have seen quite clear diversion of performance between Oil and Natural Gas Corporation ( ONGC ) and Reliance ( RIL ) ever since the gas price hike news has come. What would be your strategy over there?
A: Reliance still has a lot of merit. That is one stock where probably lot of us believe that the gas potential is much more than what it appears. Also the fact that the gas prices are being revised is going to be beneficial. However, for Reliance it is much more than that. It’s the cash in the books; it’s also the fact that the retail story is also going to play out in a very aggressive way.
As far as the upstream companies are concerned, I would say that Gas Authority of India Limited (Gail) and ONGC probably have still a very deep value, though in the short run, possibly they may remain a little muted and maybe range bound.
Both the stocks have a deep value and if you have a waiting period of about 12-15 months both can give a reasonably very good appreciation.
Q: What do you do with a stock like Relian ce Communications - it is the biggest gainer this week. It has rallied more than 40-50 percent since the start of the year. Would you recommend accumulating or staying away?
A: As far as RComm is concerned - one of the biggest institutional investor has been buying in a pretty big way at the moment and that has really played out very well and possibly at every dip they are buying in what we understand. So that technically gives a lot of support to the stock.
Having said that we are yet to see the numbers yet to work out as far as the financial performance is concerned and it is more an expectation that may be the revenues will play out, the debt will ease and may be big brother will eventually do something which will be positively accretive for the company.
So at the current levels I would still be a little more apprehensive, possibly may not be in a hurry to buy the stock.
Q: What would be your portfolio stance now? Would it be geared towards defensives, would you now start to look at some high beta names, how would you play the market now?
A: Considering the volatility in the markets and the fact that the way the rupee has behaved and lack of FII support I would be leaning more towards being defensive at the moment. So, there would be a few IT names for me in that particular approach.
It would still be a pick and choose something like Larsen and Toubro (L&T), Crompton Greaves may be, because of the buyback they still look pretty good. Reliance possibly one can still play for a slightly longer term.
Nifty at life time highs; uptrend may soon face resistance as markets become overbought
THIS LETTER HAS BEEN BULLISH FOR MANY DAYS. WHILE THE LONG TERM TREND IS NOW UP, A CORRECTION MAY BE COMING SOON.
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