MF Global doesn't see steep correction ahead, suggests buys

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Nifty may swing 100-250pts in next 6-8 sessions: CK Narayan Mkts to stay buoyant on strong eco data: Motilal Oswal AMC Emerging markets continue to be optimistic: Aberdeen 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

Markets in India have shown good amount of resilience in midst of weak global data. Many experts feel the market is ripe for a correction at current levels.

Speaking to CNBC-TV18, Rahul Shah, MF Global said, even if there were to be a correction in the market, it would not to be very steep in nature. "Currently, we have a lethal combination of the global liquidity flowing to the growth areas and we have a very strong domestic inclusive growth. So, as of now, it looks like the liquidity is finding its own place and markets are refusing to go down."

According to him, the market might see all the telecom stocks, where the 3G rollout is coming, the likes of  Reliance Communications or Bharti moving up. "Come September-October, 3G rollout will start, so you might see some kind of positive news flow from that angle."

In the midcap space, he preferred Escorts and JBF Industries . While in the metal space, he chose to go with Sterlite Industries and Hindalco Industries , which he felt may stage a pullback.

Here is the verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Anuj Singhal. Also watch the accompanying video.

Q: We were discussing what kind of state markets are in, we don't see any euphoria, whereas at the same time, we are now seeing a trend where individual stocks are buzzing because either market is buying them on sum of part valuations or may be too much of a holding discount. What's your sense of what kind of phase we are in? If indeed we will see some correction then what could be the correction levels?

A: Currently, we have a lethal combination of the global liquidity flowing to the growth areas and we have a very strong domestic inclusive growth to say. So, as of now, it looks like the liquidity is finding its own place and markets are refusing to go down.

Also, if you look at the futures and options (F&O) data, which we analyse, there is huge option build up, which we have never seen for a long time, at various strikes, mainly on the put side. That's what makes us feel that even the fall or the correction that will come in or that comes in is not going to be that steeper. So, all in all, there is liquidity, so rather than taking a big call on how the markets value growth, I think right now the focus is clearly on the liquidity. As long as we find that liquidity, there are no measures globally or locally taken to curb the liquidity this party is on.

Q: So the long and the short of it is that valuations will not look realistic to an investor, but the money is there. Typically, what does this kind of money chase? Should one look at midcap stocks, should one look at high beta? Typically, where does this kind of not yet frothy, but perhaps excess liquidity look for?

A: If you look at it from the fundamental push then value is clearly over, growth is almost discounted may be not even one year, 2011- 2012 also. If you compare this scenario with what happened in 2007 then may be you might start seeing sum of parts valuations and stocks, which represent them start attracting liquidity. So, this is a cycle where exactly that we saw and finally it culminated with managements selling part of their stakes. But this is the penultimate stage where you might see liquidity going forward chasing sum of the parts with companies that represent sum of the parts valuations and you might see some kind of money flowing there.

Q: Where are you smelling, where there could be some kind of valuation headroom because of the sum of the parts, there is some legitimacy to it as well, where do you see, if you can name some places where you think it is likely?

A: We need to go back to 2007 and again open the books and do the homework as to what kind of stocks were doing well.

Q: Both the Reliance duos were doing very well.

A: Reliance Infra for all you know represents still a good sum of the part at this level. L&T from the frontline stocks look like their various businesses and they were talking once upon a time about unlocking value there. So you might see, if you consider alone per se L&T might look expensive, but if you start looking at sum of the parts may be, primarily this driven by liquidity you might find some value there. JP Associates is one of the stock that comes to my mind where if you start looking the stock has not performed. So, the theme is that, yes, if liquidity has to continue then may be these kind of stocks might do well.

Disclosures: My clients would be holding a lot of the stocks that we discussed today.