Mkts to stay rangebound till Budget: Dipan Mehta

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Dipan Mehta , Member of BSE & NSE feels that given that the markets are getting sentimentally affected by the cues from the US and Asia, they (markets) will be more rangebound. Gradually, the range will move up and markets would take a review only after the Budget , he told CNBC-TV18. Mehta informed that he is comfortable with the low volumes on the markets as long as the markets are not correcting and remain stable.

Excerpts from CNBC-TV18's exclusive interview with Dipan Mehta:

 

Q: What's your sense of where we are right now? Will we remain rangebound for a while or do you think there are still chances of that pre-Budget upward dash?

 

A: Sure there are chances of a pre-Budget upward dash, but likelihood of that is quite low at this point of time, given the fact that a lot of market players are still cued on to what is happening in the overseas markets and developments in the US economy and how the Asian markets are trading, the direct impact on the sentiment and the short-term movements in our stock prices here; my sense is that it is more of a rangebound market and gradually the range maybe moving up which means that we may see higher tops and higher bottoms going forward. But nothing spectacular is expected at least for this month and then after the Budget one has to take a review of how the markets may move.      

 

Q: A lot of the big volume-burst because of activity on the F&O side, do you see us working with such low volumes for a while now?

 

A: It is perfectly fine to work with low volumes so long as the market is not correcting. I think the bigger problem is that we should not have major sell offs 2%-3% declines which were there in January and so long as the market is stable and volumes are low, it is perfectly fine.

 

Delivery volumes are stable. In fact as a proportion of the overall volumes, they may have even increased over what we saw in December and January  - so that is perfectly fine. At the same time, low volumes can be also attributed to lot of speculation getting out of the way especially in the futures market, lot of arbitrage volumes have also come down.

 

So it is more to do with these speculative and the trading volumes, which have come down, and genuine investor volumes remain pretty satisfactory at this point of time. I think these volumes also can easily improve as and when we see some stability in the markets and some of the fear in the market - once it evaporates because of increased confidence, the volumes also will come back. It is just that a lot of traders are waiting in the sidelines because perfect trend is not in place as yet. As soon as we have a trend in place, we will see uptick in volumes as well.

 

Q: What's your sense of how the rupee has hit its lowest level in the last five months, it's now at 40? What could it mean for IT stocks in the near-term because there is an expectation that this would be the near-term resistance for the currency?

 

A: It's extremely positive for IT companies and it will give them the perfect opportunity to go for long-term hedging of their revenues, which are expected over next two-three years. A lot of companies have been seriously looking at these long-term hedges and this may provide the perfect opportunity for them. At the same time it, will provide that perfect outperformance or quarterly earnings beating market expectations when results are announced in April, for the March quarter. So on the whole it's extremely positive. Whether on the flip side you have the US economy and the problems, which are over there, and how that could dampen the volumes for IT companies. We have been seeing some amount of retrenchment taking place with IT service companies as well. So my sense is that while the industry as a whole benefits, there could be a few companies, which could be in a bit of a situation because of what is happening in global markets, especially the US. So one has to be quite selective within this particular pack. But the rupee depreciation is certainly positive not only for IT, but a lot of export-oriented companies.       

 

Q: How are all these developments sitting by way of sentiment on the market though, because there is one school of thought that this cut in the rupee is mainly because there is probably going to be an outflow of funds across markets like ours. On the other hand there are commodities surging to new highs. How much of that is putting pressure on sentiment as well you think?

 

A: I think presently the sentiment is more being determined by what is happening in the US markets and how deep the recession would be over there, how this slowdown will actually play out and which are the sectors which would really be impacted. Then we have excessive volatility in the global markets also, which is playing out over here. In our context, we are seeing a situation where from an extreme greed there is now an extreme fear in the minds of the market players. Although valuations are more or less attractive and a lot of companies still are on even growth; it's just that investors are not prepared to pay for prices at this point of time because of the uncertainty which is there in the US markets and how that would impact our economy. So it's more to do with these global factors rather than say rupee appreciation. Commodity prices too have their role to play in it. But it's more to do with what is happening in the global markets.     

 

Q: What is your sense of what's happening in the primary market now because after the Reliance Power turmoil there was a lull period. But now it seems like most of the issues are seeing some subscription perhaps not so much from the retail side but there is some sort of a build up in sentiment or is that not the case?

 

A: It's more to do with the fact that the IPO pricing has become quite attractive and a lot of the IPOs, which are getting subscribed at this point of time are being valued at within the peer group valuation range or at slight discount of the listed peer group. That's kind of helping the subscription levels at this point of time. So it's more to do with quality of the issue and at a pricing at which they are coming in which was not the case earlier where a lot of IPOs were been valued at significant premium to the listed peer group companies. Therefore on listings we found corrections taking place. But this time around, the whole situation seems to have changed and it's a good opportunity for investors to get into equities through the primary market because allotments may be quite decent as compared to what they were two-three months ago. The risk is considerably reduced because the valuations at which the IPOs are being priced at are quite attractive.

 

Q: We have two listings today, Bang Overseas and Shriram EPC anyone that you have tracked?

 

A: No, I haven't tracked any of them quite closely. But Shriram EPC seems to be an interesting business at this point of time - at least the industry it is in are extremely favoured by the stock market players. Therefore we feel that may have a decent listing.

 

Q: You track media, what did you make of that big jump in the Zee bouquet stocks Dish TV , WWIL and Zee News up significantly one day and then completely flat the next?

 

A: I think some amount of institutional buying would have taken place in these counters. These are businesses which are quite unique in nature and do attract institutional activity from time to time depending upon which FII or mutual fund wants an exposure to that particular specific investment theme. But by and large, that these companies; Zee News is solid - but other two companies need to demonstrate better financial performance before they get larger participation and consistent appreciation the way we have seen in other media stocks. So it is more to do with some sporadic institutional activity, which may have led to these stock prices going up.

 

Q: What would you do with the entire metal space now, what would your preferred pick be across all those stocks?

 

A: I think the integrated steel players stand to benefit significantly, even global steel prices are going up on account of increases in iron ore prices. I think kind of iron ore price increases which we are seeing have been unheard of, for past two-three years. So some of the integrated steel players like Tata Steel or Steel Authority of India, with due disclosure that we may have investments in them or recommendations, would be favourably placed compared to some of the other steel players which are elsewhere in India as well as operating in other countries. The fact that there steel prices would go up but they would not be at commensurate increase in the iron ore prices because of captive mines, would mean that their earnings growth would be far higher than some of the other steel players and valuationwise also they are quite attractive single digit P/E multiples for FY09. So there is some degree of margin of safety in them as well.

 

Q: What is your call on Reliance Power ahead of the bonus issue announcement?

 

A: It is very difficult to make a call on Reliance Power - a lot depends upon what the bonus ratio is and who are the eligible shareholders who would get the bonus shares. But certainly, no doubt that whatever step the management takes will be positive for Reliance Power shareholders - difficult to say at what price the stock would become attractive given the basic business model and the fact that these are long-gestation projects, which come into commissioning three-four years down the line.

 

Q: You have heard what the management of Shriram EPC had to say, should do about Rs 1,500 crore in sales for FY09 what would you do with this stock?

 

A: I think at these levels, it is fairly valued compared to its peer group and my sense is that there are better opportunities within the infrastructure space available at slightly lower valuation. Therefore I think that although it is a great company more or less all the positives are being factored in the stock price.

  

Dipan Mehta's Disclosure

 

It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.