TCS takes centre stage post Infy's poor Q4 nos: Anand Rathi

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets TCS BSE | NSE 29/05/12 Are Mutual Funds betting on TCS? Other Stocks in this news HCL Technologies | Infosys | Jaiprakash Associates | Larsen and Toubro | Yes Bank | United Bank of India | Petronet LNG Ltd |

In an interview with CNBC-TV 18, Devang Mehta, Vice President & Head - Equity Sales of Anand Rathi Financial Services gave his readings and outlook about the market and sectors.

He said, "My take is that TCS henceforward can be an outperformer in the IT sector. If at all TCS also fails to deliver, then the coming days are not going to be good for IT."

From the capital goods space, he is bullish on  JP Associates and L&T  from a long term horizon. 

Below is the verbatim transcript of Mehta's interview with Latha Venkatesh and Anuj Singhal of CNBC-TV18. Also watch the accompanying video.

Q: The market has been able to ignore a lot of bad news, but now if inflation also disappoints and comes well above that 8.3-8.4% that is being expected. Do you think this is a time to sell or do you think the markets still, under current still looks strong?

A: My take is that though the under current still looks strong, but there has been shear liquidity or FIIs (Foreign Institutional Investors) inflow that has driven the market in the last couple of weeks, but nothing fundamentally has change so far.

Crude is at a higher end of the trajectory, also the interest rates are showing nowhere the reason to pick out. Also, inflation has been a sticky issue right now.

So, I don't think there are any fundamental factors, which are now driving this rally. It is only liquidity and what liquidity can do the markets that is what the sheer reason is. Plus adding to this it was disappointing results from Infosys as a result season starts is not a very good thing that an auger well for the market going forward.

Q: Then what would be the call on Infosys itself, that is down about 7-8%. Couple of initial thoughts have come from brokerages, it looks like some derating or downgrades are on the way, but as an investor what will be your advice?

A: I guess lot of clarity would be still awaited after the con call with the Infosys. On the face of it, looks like a disappointing set of numbers on all fronts on the margin, revenue and also on the guidance.

My take is that TCS henceforward can be an outperformer in the IT sector. Though, lot of things would now depend upon the results that are going to be announced on 21st and HCL Tech which is coming with numbers on 20th of April.

So, these two would be crucial for the IT sector going forward.

Q: Do you think that you would also now start wondering about TCS valuations, or do you think that the downturn, the volume fall that you are seeing in Infosys and the expected fall in margins is perhaps an Infosys thing and not an IT sector thing?

A: Yes. I would like to think that it would be only a company specific. The National Association of Software and Services Companies (NASSCOM) is always predicting industry growth of 17-18% and Infosys growing below that is not very well.

But, for TCS which has always been a stellar performer for the last two-three quarters and can still deliver. If at all TCS also fails to deliver, then they are not going to be good days for IT in the coming days.

Q: Couple of stocks which have looked good off late, are JP Associates and L&T , especially L&T because that is such a bellwether stock for the market. Do you think these stocks have turned a corner and could actually leap to next market rally?

A: For the capital goods, we are envisaging that the investment capex would start somewhere in the second half of this year. These stocks are currently rallying in the second half of this year and the stocks are currently raying on the expectation of good order flows which they have not been able to get right now.

As far as L&T is concerned, we have seen not very good order flows also and then there are execution issues. Now if these get solved in the next two- three months, then probably capital goods can be a sector which can be looked at from a very long-term horizon.

But in a short-term I don't think L&T would do greatly. I currently envisage that for JP Associates a larger chunk of it's orders would be infra as well as it is doing very well on the cement front. So currently, we like JP Associates a lot. L&T is also our buy, but for a very long-term horizon.

Q: What are you expecting in terms of the banking sector in the current results season? Would you top up before the numbers start coming?

A: This quarter probably, would be quite good for the banking sector. But, going forward, from the Q1 of FY12 the pressure could start coming on the Net Interest Margins (NIMs) and Net Interest Incomes (NIIs) because of the interest rate cycle that has now started moving up.

We also expect that more rate hikes would be there in the May policy from RBI. So, going forward I don't think there would be great to be all the banking stocks. Selectively though, we do like stocks like United Bank of India , Yes Bank which can do very well over the medium-term period.

Q: What about inflations as a concern for the market and some of the rate related sectors like auto, real-estate, what would be the call there?

A: That is a call that we need to take when we see that the interest rates are right now moving towards the upward trajectory and at least 50-75 bps point can be expected in the next two- three quarters. Then autos, banks and these stocks can be little bit of laggard. So we feel that currently it would be better to be in the consumption themes something FMCG or hotels which is doing very well in the current scenario.

Q: At the moment what is the advice at all to the investors? To steer clear, because you are unable to see fundamental reasons why the market is buying, liquidity is the sole driving factor or do you think liquidity is as good a factor as any, it is more important than fundamental, so let the trade be a friend?

A: Yes, trend is a friend normally for traders. But, for investors whenever there is a substantial dips, say a 150 points on the Nifty, then it should be utilized  as an opportunity to buy quality stocks. Also, we do like something like Petronet LNG in the rising crude price scenario.

We know that this stock can do very well and there would be lot of volume improvement on the LNG front and this can be used as alternative fuel. So, we do like some alpha ideas which can give good returns when markets are not doing good.

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