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Nov 15, 2011, 11.05 AM IST
In an interview with CNBC-TV18, Sangeeta Purushottam, Managing Director at Nine Rivers Capital says we are still sometime away from the bad news actually bottoming out.
In an interview with CNBC-TV18, Sangeeta Purushottam, Managing Director at Nine Rivers Capital says we are still sometime away from the bad news actually bottoming out. She forecasts more pain, less joy for the market in the days ahead.
The next six months can see market heading lower, according to her. "The reason for that is we still have at least two to three more quarters of pain as far as corporate results are concerned," says Purushottam.
Below is an edited transcript of her interview. Watch the accompanying video for more.
Q: We have gone through most of earnings season and read some of the macro numbers which have come in from our market. Putting all of it together, can you justify more upside in the near-term?
A: No, I donít think so. We will kind of grind down a little lower. We are still sometime away from the bad news actually bottoming out. On balance I would say that there is a little more pain ahead rather than joy for the markets at the moment.
Q: Will we be resigned to this range where there is frustration in terms of breaking out or do you think there is a real possibility that market pierces the lows it has seen this year, that we will probably settle at lower levels?
A: If you look at over the next six months, there is a fair chance that we could actually head lower. The reason for that is we still have at least two to three more quarters of pain as far as corporate results are concerned. The external environment does not look rosy by any definition. We are more like in Act Two of the macro and the external headwinds that we are facing.
We still need to reach a stage where the market is decisively pricing everything in. We are still a little away from that. The only silver lining I can see at the moment is that if RBI does indeed pause then that could lead to some kind of a relief rally towards the end of the year. Otherwise itís going to be the slow grind that we have seen in a range which is actually moving a little lower.
Q: The whole aviation kind of non-performing asset episode has taken a toll on many of the banking stocks, particularly in the public sector universe. SBI is down about 15% over the last one week. Would you worry on that score? Would you still be underweight on the beaten down PSU banks?
A: If we take a long-term call of about two years plus, then these banks offer value. Many of them are now trading close to books and some of the midsized ones are a little below that. This has been reflecting the pain, which lies ahead.
In the near-term, the news flow could possibly get worse because concerns are not only emerging on the aviation pack, but also on the power sector. It affects different banks differently.
There are also incipient concerns on what will happen to a lot of the SME lending and other loans. These concerns will play out and create a little more downside in the near-term.
If we take a longer term view, then nibbling at some of these banks at this point would start to make sense.
Q: What is your view on the numbers that came out from the sugar sector?
A: It was a fairly nasty surprise for the sugar sector. Nobody was expecting these kinds of numbers. These are some of the things which come out, when we are going through a slowdown. There will be pockets of pain, which will surprise or hit you on the face.
Q: M&M reacted to its numbers quite negatively yesterday. Would you buy that stock on declines or should one be cautious on that?
A: Itís time to be a little cautious. The interest rate sensitives could see a relief rally if the RBI pauses. In the market as a whole, itís better to be cautious at this point in time.
Q: This quarter, the largest number of misses has been from infrastructure. What would you do with that space now?
A: It will go through somewhat more difficult times. We donít see much sucker for this sector around the corner. The volume growth or flow of projects would not pick up.
These stocks could react positively if we reach a stage where the interest rate cycles peaked out or the RBI stops the rate hike process. This could lead to some kind of a relief rally in these stocks. Otherwise, it looks difficult for the stock to perform well.
Q: Would you buy HUL at Rs 400?
A: No. The consumer space would remain defensive for the time being given the stresses in many other parts of the market. It does not make sense to get in at these levels.
Q: What kind of allocation would you give to IT given the currency scenario and the fact that IT has been one of the better performers compared to the other sectors this quarter?
A: IT, pharma and FMCG are again back in the defensive play. Till there is uncertainly in many of the economy related sectors and the rupee remains under pressure in the case of IT, money will remain in IT.
Unlike FMCG and to a lesser extent pharma, the risk in IT is the whole rupee play. If the rupee starts strengthening back, the IT sector would see pressure coming in again. So, this is where the stocks falls as a semi defensive.
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