Nov 27, 2007, 01.54 PM IST | Source: CNBC-TV18

Midcaps offer better opportunities than large caps: Emkay

Krishna Kumar Karwa, MD, Emkay Share & Stockbrokers said the November series could close at 5700-5750 levels. He added that they are advising clients to lighten positions in case of a market rally. According to Karwa some volatility is expected despite a good opening and bounce back.

Krishna Kumar Karwa, MD, Emkay Share & Stockbrokers

Krishna Kumar Karwa , MD, Emkay Share & Stockbrokers said the November series could close at 5700-5750 levels. He added that they are advising clients to lighten positions in case of a market rally. According to Karwa some volatility is expected despite a good opening and bounce back. He added that investors should expect stock specific out performance by the midcaps vis--vis large caps.


Midcaps offer better opportunity than the large caps, Karwa said. According to him, a lot of interest will be seen in the power sector till the Reliance Power issue. However, he added, a consolidation is expected in the sector and advised investors to book profits.


Karwa is positive on Infosys , TCS and Satyam in the IT sector and on midcaps like Mphasis , BFL.


Excerpts from CNBC-TV18s exclusive interview with Krishna Kumar Karwa:


Q: How do you expect the November series to close and what generally are you hearing and sensing about the December series?


A: We believe that the November series should close around 5,700-5,750 levels odd. There has been decent bounce back from the low of last week, which was closer to 5,400 and we feel that the market is range bound kind of a market where 5,800-5,900 should be toppish for the time being.


As far as the expiry is concerned 5,700-5,750 ranges - what we are quoting; we should close at currently around those levels and in between, we could also see some volatility. So we are advising our investors, traders that use the rally to lighten positions rather than increasing positions as such.


Open interest being almost closer to 81,000 crore odd and 60,000 crore odd, still needs to be rolled over. So one can expect some volatility. No doubt the opening has been good and the bounce back has been good in the last two trading sessions, but caution is the watchword.  


Q: How do you expect the midcap side of the market to move within that volatility. Do you think there will be more out performance or maybe deeper cuts?


A: I believe in the last one month or so, midcaps have outperformed the larger indices and going forward, also stock specific out performance in the midcaps would be seen. Valuations of midcaps are quite under control, but whenever there is an aggressive negative move on the largecap indices, then for few days across the board, one does see some sell-off in the midcaps. But now investors are smart enough and normally do no see panic selling by the matured investors. So going forward also, I believe midcap offers better opportunities than largecaps which looks slightly fairly valued.


Q: What are you telling your clients to do on power names where there is a lot of interest like NTPC , Reliance Energy , Neyveli Lignite ?


A: Reliance Power issue is expected maybe in December-end or January first week. So till that issue, there will be lot of interest in the power sector. On a broad base the power sector offers good opportunity for investors investing in a long-term basis. But the run-up in the stock has been very aggressive in the last few months. We expect consolidation to happen in the power stocks rather than great appreciation from current levels as such. So we are advising our investors to book profits and be more cautious on the valuation front rather than getting into the euphoria. Having said that, till the Reliance Power issue, power sector should be in a buoyant mode.


Q: How have you read the developments on Reliance Petroleum and what would you do with that stock at Rs 220 odd?


A: If one looks at the IPO price of the Reliance Petroleum, it was at Rs 60 and investors who have bought at that time and have held on to the investments have almost made three-four times in less than a year as such. But having said that, the valuations of Reliance Petroleum do look stretched currently so investors who have made money and book profits- fair enough, I think there would be better opportunity to enter the stock.


From a trading perspective, open interest etc is very higher in Reliance Petroleum and there may not be a great upside going forward in the immediate run. But Reliance group per se have always made lot of money. So we believe that at an opportune time, they should invest in Reliance Petroleum to reap further gains. Top down, the story looks interesting, temporary the valuations looks expensive.         


Q: The rupee is come back to 39.60. There is some kind of interest building up in IT after a long-time. Would you buy in that space now and what specifically?


A: I believe this is the sector, which offers the most value at the current prices as such. Infosys at Rs 1,550-1,575 is quoting closer to 15 times 09; I believe it offers great value for long-term investors. We have not seen any slowdown in recruitment from their side and whatever negative as far as the dollar rupee is concerned are all priced in. We are aggressively recommending our investors to start building up positions in IT sector and initially to start with they should go with the larger names like Infosys, Wipro , Satyam of the world. Satyam, I believe is now quoting at 12-13 times '09 earnings and its an great opportunity to start picking up position so thats one sector that we are recommending to our investors.


Among midcaps over there we like Mphasis BFL with the kind of support that they have from their overseas parent EDS its quoting at around 12 times 09 earnings. Whenever the sector comes back in flavour these are the stocks, which could give good returns; no sense chasing stocks which have already done well in the last one-year and IT stocks are almost down 30-40% from their peaks, contrarian calls should be taken by investors and they should start building up position in IT stocks from current levels.     


Q: Any other interesting midcap stories that you have got going right now at Emkay?


A: One stock that we are recommending to our investors and we like is Thomas Cook ; we have in fact released a research note on it recently and thats one story which plays well with the India theme in terms of inbound and outbound tourism, the conferences etc which are happening and lot of consolidation has happened in that industry.


They have acquired TCI and LKP Forex in the last one-year. So the consolidation is happening in that company, there has been change of management, lot of efficiencies are coming in and we believe that at the current price which is Rs 70 odd this stock could give at least 50% appreciation in the next one year as such. This industry is an unorganized sector so consolidation should happen and the organized players should take the benefit out of it.


There arent too many listed players in this segment and Thomas Cook offers great opportunity. Around one year ago, when Dubai Financial Services took a stake in the company - that time they acquired it around Rs 60-65; the stock is still quoting at the same level; it allows retail or minority investors good entry opportunity into the stock at the same valuation. So thats one stock we are recommending aggressively to our investors.         




My company, my clients and I have invested in all the stocks that are discussed.



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