Small, mid-caps safe bets in current mkt: Religare

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In comparison to its global counterparts the Indian bourses in the past one week have been underperforming, says Vipul Sanghvi of Religare. However, he adds, "Small- and mid-cap companies have been performing better than the large-caps. This implies that a lot of interest is now developing into this space and it has clearly become a stockpickers market."

Mid-cap cement, telecom and cement companies, according to him will rally in the near term.

Here is the verbatim transcript of his interview with CNBC-TV18's Udayan Mukherjee and Sonia Shenoy. Also watch the accompanying video.

Q: With the outperformance that our markets have seen so far, you think the strong footing of the equity markets will continue?

A: As far as India is concerned, if you look at last one week, India has underperformed very strong global performance and that is not without a reason. We have been a strong outperformer if you look at the year to date (YTD) performance.

Going ahead, if you look at the data once again, BSE smallcap performance, which is a larger index of small and midcap companies, it's YTD up 8% versus Nifty just about 5%.

I clearly see a lot of interest now developing into the small and midcap space and it has clearly become a stock-picker's market. We see that lot of value going ahead from a portfolio perspective. We will have to come from smallcap and midcap space at least for the next quarter or so.

Q: What sense are you getting from the institutional desk in terms of flows? Last fortnight or so FII purchase has slowed down a bit and we haven't seen anything much from the domestic institutions in any case. Do you see that picking up or being fairly muted?

A: The domestic institutions remain muted clearly because of the fact that net inflows are not so encouraging as yet. On the global side, if you look at traditional long only managers, they still continue to remain cautious and they have taken a view that this is the ranged market. The larger part of flow that is getting into the market and that we are seeing whole last nine months or so is largely, I would say, the allocated money or at the same time the ETF money, which is foreign retail investor, which is coming via the ETF route because clearly, from a global portfolio manager perspective, India definitely needs a presence in his portfolio. He [global portfolio manager] cannot ignore the market which is growing where the GDP is growing at 8-8.5% and you have situation where government is consolidating its fiscal position and there are more positive surprises on that front also rather than a negative.

From a global fund manager point of view, he needs to allocate some money, global retail investor needs to come in to a market like India via ETF way and which is what we are seeing in our inflows close to USD 13 billion so far YTD.

Q: Taking that point forward that you made about the midcap and the smallcap outperformance from hereon. Last week there was an assortment of sectors that did well be it hotels, fertilisers, auto ancillaries. What would the sectoral call be now according to you?

A: It is difficult to point out which sector within the midcap will be the next to rally-that is anybody's call. But it has been more stock specific as far as this particular space is concerned. There will be opportunities, for example, we like cement as a sector to be one positive surprise going ahead and midcaps and cement, for example. Companies like Orient Paper and Birla Corp are the top ideas that we like within that sector. So maybe going ahead cement could be the next-who knows.

Within telecom also there are smaller companies, for example, the company that we like in this space Spice Mobility, which is a play on the handset and telecom retailing. That offers a good opportunity from telecom midcap space.

Hotels, I agree to the fact that macro environment for them seem to be turning for the positive. You have Commonwealth Games ahead; you have occupancies going up and you have hotels taking price hikes. So you definitely are going to see fundamentals improving for hotels. So hotels could continue for a bit longer from hereon.