Nirmal Jain, chairman of IIFL feels that the Nifty is likely to consolidate around 5300-5400 levels but at the same time he advises to be cautious. He sees support of the Nifty at 4800 levels.
Q: Cement sector went through a pretty bad patch in terms of news, but stock prices have not got damaged that much. How do you read that CCI order and its impact?
A: The market has absorbed that news without giving in too much. Most of the cement stocks have not really been impacted by this. One view is that that order will be challenged and the second is that there maybe competition, but still margins are healthy. Relatively, north-based cement companies have been doing better.
There is a domestic demand growth which is driven by rural economy, housing sector and also the infrastructure sector is likely to gather momentum as we go along next two years. But the demand pool is pretty strong, new capacity addition has not been very significant in last three years and therefore sector should do well.
Q: How would you play the market now in terms of sectors or spaces that you are comfortable taking exposure with?
A: We were advising our clients to be overweight in pharma, IT and cement. These are three sectors that our research is recommending to be overweight in, because there has been pressure on rupee and pharma and IT will benefit from that. Other than that, pharma sector in particular will also benefit from the health bill and the health related expenditure which is going to increase significantly in the US.
IT sector will also do well. Valuations are not very bad. They are quite attractive. Cement is one domestic sector where the demand-supply scenario and margin scenario looks favorable. One should be very selective in consumer, FMCG - companies like ITC , Hindustan unilever and Nestle . Their valuations are expensive, but downside risk and beta is also very low.
We are advising our clients to be underweight or reduce their exposure to sectors which are discretionary consumer spends like auto or real estate. Auto numbers have been very disappointing in the first quarters, so results for June quarter are unlikely to be very positive. So that is one sector where one can reduce weight to. We still remain cautious in sectors like infra, even capital goods where midcap capital goods have rallied, but one should be very cautious there. So all other sectors one should be underweight in.
Q: What in your mind will be the key focus for the markets now, the key trigger? Will it be domestic factors or will we get back to tracking global developments?
A: Most important thing I will watch out for is the crude oil prices, because they impact India lot more. Second thing I will be watching is monsoon. Both these variables are not dependent on government policies or anything which is in the control of policymakers and that’s where we need a bit of luck.
The next I will watch is government policy and the fourth sector will be global events which in any case are not too much under our control. Their impact might be more exaggerated in our perception than reality because the impact may happen for a day or two, but investors start looking at fundamentals of the country and companies.
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