Sep 17, 2012, 01.45 PM | Source: CNBC-TV18

Mkt moves to be tempered; bet on pharma, FMCG: Religare Cap

Gautam Trivedi of Religare Capital Markets believe the decision to hike diesel prices was a significant move indicating that the government was ready to move ahead. However, it is essential to see whether the reforms are actually implemented or not.

Markets got a new lease of life after the government announced a slew of reforms including a hike in diesel price and FDI in retail and aviation. Gautam Trivedi of Religare Capital Markets believe the decision to hike diesel prices was a significant move indicating that the government was ready to move ahead. However, it is essential to see whether the reforms are actually implemented or not.

Also read: Diesel price hiked by Rs 5/litre; petrol, kerosene spared

According to Trivedi, defensives are likely to underperform going forward. He recommends profit booking in FMCG and pharma. The current valuations of cement stocks are also attractive and pricing will improve, he added. But, market moves are likely to be tempered from hereon, feels Trivedi. He also thinks that India focused foreign institutional investors (FIIs) have not seen significant fund inflows.

Here is the edited transcript of the interview on CNBC-TV18.

Q: It has been a terrific run in the last few days, what would you be telling your clients now in terms of approaching the markets?

A: Let us look at a bunch of things that are happening. I think there is obviously a potent mix of QE3, sudden reforms and the fact that the VIX is at a 5-year low of 15.4%. I think we clearly have all the ingredients for a big rally. Question is how long does this sustain and what are the other issues that are still to come.

If you look at the diesel price hike, that brings in under recoveries to about Rs 20,000 crore, which in a big scheme of things when the fiscal deficit is at 5 lakh crore, is obviously a miniscule number but it is a significant step, which until recently the government had shown no interest whatsoever to reduce.

I think this was probably one of the largest concerns, if not the number one concern among FIIs and domestic investors, on how exactly the problem of fiscal deficit can be tackled. I think the government has taken baby step towards that, hopefully we will see more coming over the next few weeks.

I think it is a bit of a wait and watch. I would not advice people to rush back into the market. Of course some of the names have opened up high today for obvious reasons of FDI in retail and aviation. Those stocks would obviously go up but, I think we have got to wait and watch and see what are the next steps from the government.

Also with respect to QE3, if you look at the previous three easings including Operation Twist, the first QE1 which kicked-off in November 2008 had a rally in both emerging markets like India and the S&P. But, subsequent easings did not result in any major rallies in emerging markets including India. I think keeping that in mind, you have to be careful about what QE3 means for emerging markets and India at this time.

Q: If this is a sentiment plus liquidities led tactical rally, what do you tell your investors to do in terms of approaching it, do you ask them to take profits in certain sectors and what kind of names would you advocate them to play it through?

A: I think profits in the FMCG and pharmaceuticals clearly is recommended at this point because if you look at the FMCG space, the stocks kept reaching new highs. A lot of these stocks are even now trading way beyond our 12 months target prices and hence, it was difficult to explain to people why these stocks were moving up.

But, I think that the real reason was the fact that there were lack of options and investors preferred to stay closer to defensives and safer bets versus getting adventurous. Now we are telling investors, probably starting this morning, to book profits in both these names and look at stocks like Jindal Steel and Power , stocks that are down as much as 40-45% caused by a specific event.

I think now it is a good time to look at some of these names. We also continue to like cement, we have over the next 18 months 11-state elections and of course demand-supply dynamics are clearly in favour of pricing. We continue to prefer Ambuja , Ultratech and also recommend two midcap names within the cement space, Shree Cement and JK Lakshmi Cement.

The other space we like a lot is media and that has obviously benefited from Friday's news on FDI in retail and hence we continue to pound the table on both Hathway and Dish TV .

Q: Any expectations from the Reserve Bank of India (RBI) today, do you think they can add to the cheer or is that expecting too much?

A: It is expecting too much. I was referring to the potent mix of a rally. It would be phenomenal if that were to happen. But, let us get realistic. Given last week's print of 7.55% plus the diesel price hike which would probably add at least another percentage to the WPI, it is very unlikely that the RBI will do anything major today.

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