May 30, 2013, 02.17 PM | Source: CNBC-TV18
The macros have improved; markets have gone up from the present level. A correction is possibly warranted and can happen, Mehraboon Irani said.
Mehraboon Irani (more)
Head -PCG, Nirmal Bang | Capital Expertise: Equity - Fundamental ,IPO
Continuing his upbeat tone, he added that even in the worst possible scenario, the Nifty is unlikely to fall below 5500. He further added that one should keep an eye on India’s index of industrial production (IIP) as it now be of more significance than it has been in the past.
On stocks, Irani's top bets from the IT sector were TCS and HCL Technologies . He added that owing to performance and despite a dividend , NMDC was not a stock to be bought in hurry. He maintained a negative outlook on HDIL stocks.
Below is the edited transcript of his interview to CNBC-TV18.
Q: How are you mapping the June series?
A: Stock markets are basically consumers, purveyors of cold economic data and they are completely bereft of any emotion, any prejudice which we humans ultimately end up suffering from.
The data is indicating that unless it really worsens very badly from here, there are no reasons to have a very bearish case for India over the next few months of 2013.
The macros have improved; markets have gone up from the present level. A correction is possibly warranted and can happen. Corporate results are going to be behind us; things are getting discounted and have gone up.
Things on the ground need to improve. We have to watch out for the index for industrial production (IIP) numbers which will be of more significance than what they have been in the past.
We will have to observe cement numbers and auto numbers. All those would become important. A lot of things yet need to be done by the government and reforms need to continue.
If the parliament doesn’t function, can’t things happen outside the parliament? The things on the ground level, at the micro level now need to start improving. If it doesn’t improve, the market could have a temporary set back.
Q: A set back to what kind of levels you think?
A: In the worst possible scenario, we are unlikely to see the Nifty below 5500. If there is a decent monsoon, if the Reserve Bank of India (RBI) cut rates, we could be staring at a new high in the very foreseeable future.
Q: Today’s star is probably going to be Tata Motors . Any thoughts on that stock?
A: We have been very positive on Tata Motors for quite some time. It remains the best cyclical idea according to us. The numbers are much better than expected. Domestic performance of Tata Motors; should have been ignored by the market one should start ignoring it completely.
JLR contributes nearly 90 percent of company’s sales now. As far as JLR goes, very decent performance. But what is more important to know is the slew of models which the company plans to launch over the next three-four years which is going to be expand its addressable market multi fold.
Even if JLR ends up acquiring only five percent of the incremental market over the next three-four years, their sales could at least double. So we are very positive on Tata Motors.
Our target over the next 2-2.5 years could be upwards of even Rs 500. The stock has gone up. It should be viewed with very warm perception at the bourses today.
During correction, one should definitely go and buy into this particular stock because in some way one should possibly reduce the weightage on the defensives and start looking at cyclical.
We personally feel Tata Motors and maybe Larsen and Toubro; one should go and buy. They are the best cyclical ideas right now.
Q: What about a sector like information techonology (IT)? We haven’t yet seen any big reaction on IT stocks because of what has happened with the rupee. Would you start looking at that space now?
A: If one looks at the way IT stocks have moved, the first two months were very good. IT index outperformed the broader indices by a wide margin. But looking at what has happened, and while one can attribute this to company specific issues be it Infosys or be it Wipro, market has realised someway that the valuations for now are complete.
The market has started looking out for opportunities elsewhere. So over the last one month, nothing much has happened as far as IT stocks go. The Indian IT story is very much intact. If we look at things improving locally especially Europe over the next one-three years, there are reasons to be positive on IT.
The best bets continue to remain TCS along with HCL Technologies . With huge cash at its disposal, and if some positive news comes, maybe an acquisition comes from Infosys, the stock could possibly be the dark horse.
But for now, whatever has happened at Infosys over the last one-three quarters has been disappointing to say the least. There was a time when Infosys was supposed to be the Sun Pharma of IT. What I am trying to say is always conservative, ultimately exceeding projections.
Over the last three-four quarters it is just did opposite. So somewhere along the line if it can get back the confidence of the market and if it uses the cash well, it could be the dark horse. For the time being, I think one continues concentrating on TCS and HCL Technologies.
In the midcaps, there are decent picks like an NIIT Technologies which we see as available at these valuations but on the whole, I think IT despite the rupee becoming weak again could continue to perform in language the market maybe underperform over the next one-two months.
Q: How do you approach a stock like NMDC which has disappointed such a lot after the issue? They announced a dividend yesterday which works out to almost six percent dividend yield but still investors don’t seem very interested.
A: At the most, looking at the overall scenario right now, as far as this entire sector goes, in defence of NMDC, the only thing which one can say is that attractively valued, decent assets, everything fine.
But should one go and buy into it? If you see the performance improving at least in the foreseeable future, there are no reasons why NMDC should be bought into. At the most, one can say from the present levels as you rightly pointed out, dividend yield was as attractive. There is not too much of downside.
One can buy for the longer term. So in a market in which possibly opportunities could keep on coming, if the market corrects a little bit, NMDC at most can be a stock which you can ignore for the time being while stating. It is a good company, decent balance sheet but I am not in a great hurry to buy the stock.
Q: What will you do with HDIL this morning after all the negative news flow?
A: I will continue to remain negative on the entire sector and HDIL in particular. The company has got its own problems. Buzz is in the air for quite some time. While all sorts of excuses can be given, we feel that most of the companies in this particular sector, the biggest crime they have done is that they have shortened their balance sheet in a very big way.
Till the time they can’t rectify their problems of the balance sheet, as far as HDIL goes from trading angle, we feel the problems are there and the news is negative. Despite the fact that the prices have come down, I don’t think there are any reasons why one should go and buy into this particular stock even from a trading angle.