Cupids bow fails to burst market bubble; 5500 key for Nifty

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Investors hoping for some stock market love seem to have got it.

In another range bound session, the Nifty continued to hold well above 5,400. Confidence returned as investors preferred their 'buy-the-dip' mode. Sudarshan Sukhani of s2analytics.com says it seems more likely that in the next couple of days we could make a move close to 5,600 and not 5200.

He sees a trend and then a consolidation. "We always assume that consolidation will eventually breakout in the direction of the original trend and that is what the Nifty is suggesting," he says.

For him, the market is in a place where there can be different kinds of newsflow but given the normal circumstances it seems reasonable that the Nifty will head closer to 5,500 soon enough.

With important events like the Union Budget and credit policy lined up in March, Varun Goel, head - PMS, Karvy Private Wealth finds there is a big chance of the market overshooting those returns if the easy liquidity regime that we are seeing in Europe continues for a longer period of time. "In the beginning of the year we had guided for a 20-25% kind of returns for the year as a whole."

Goel is banking on interests rates falling further, some kind of stabilisation on India's growth and corporate India's earnings numbers bouncing back for the market to continue its positive trot.

Inflation Data

January inflation data easing to 6.55% (MoM) gave a fillip to the market even as the index tries hard to breakout of the consolidation range. Inflation - considered an important indicator of growth, had started to hurt the economy staying above 9% for most of last year, which led to the RBI hiking interest rates.

With inflation showing signs of softening, investors and analysts are hoping that bulls grab the market by its horns and charge ahead.

But you always have the 'other' view. Some economists feel that inflation is still not at a comfortable level which may see the RBI cutting rates in March. Abheek Baruah, Chief Economist, HDFC Bank says, "March is too early either for inflation information flow or for the internalizations. They will have to wait until April to cut rates."

In an interview to CNBC-TV18, Rajen Shah, CIO Angel Broking along with Goel and Sukhani get stock and sector specific.

Below is an edited transcript of their interview. Watch the accompanying video for more.

Q: What is your view on infrastructure stocks?

Sukhani: I would not buy them at all. We must understand that stocks that have consolidated like the Nifty has done and are now breaking out are ideal candidates for taking long positions. Lanco, NCC and GVK have literally been rallying nonstop after a brief correction. This could be the last of their up moves. I would not touch them.

L&T is not exactly infrastructure, but looks excellent. After the rally it's gone through a consolidation that consolidation seems to be getting out over today. So it's a blue chip. That's a stock I would look at seriously to buy and options are available on it. Yes, I would think L&T has the potential of being an outperformer in the near future. It is a day trading instrument where you can go long in options, in futures and equity.

Q: What have you made of the slew of the numbers that have come out in the infrastructure space? Do you think the worst is over in terms of the pressures that infrastructure companies are facing like higher interest costs etc.?

Goel: This quarter definitely we should see the worst results already out. The earnings should bottom out for most of the construction and infrastructure companies this quarter. We would expect the interest rates to start coming down from March itself looking at the inflation number that we saw today and the IIP number which we saw last week. Going forward if you look at the P&L of most of the infra companies almost 40% of their EBITDA was being consumed by interest liability.

That segment definitely would show a big respite going forward. Also as far as the construction margins are concerned, there is a clear sign of some kind of a cool off in commodity prices. Going forward, that should also benefit and if we see some kind of new order inflows coming in the road space and port space, we should definitely see some kind of pickup in revenues also. Overall, we are turning quite positive on the infrastructure space now and going ahead the stocks should do quite well.

Q: What would you pick from the auto space?

Sukhani: Hero MotoCorp is the best looking chart. Yesterday, it inched up from its resistance level. Today, we have we have seen follow through that follow through tells us that yesterday's upmove was not a flash in the pan and it's confirmed. So the targets for this move should be somewhere around Rs 2200. It's a positional trade rather than a day trade. Of course day traders can enter and exit that's a different issue, but somebody who holds on can probably get a lot of rewards.

In individual stocks Hero MotoCorp is still a buying opportunity. The momentum we saw yesterday is likely to continue. In fact I would suggest that even Tata Motors will see better levels tomorrow and day after, so even that is a buy. It could surprise on the way up because it has already been surprising pleasantly. So I don't think there is any need to take profits expect for traders, as a matter of tactics they may want to cash in, but that's a different story, but it's wise. The sooner or later, we will see Rs 300 here.

Shah: If you recollect around December 20, at about Rs 175 levels we had given a very strong call on Tata Motors and we had bought the stock in our PMS. Unfortunately we exited the stock at about 35% profit, but the stock has surprised us actually by moving up and today by delivering this kind of numbers. We need to see if there is a component of forex gains in these numbers or some other income, but around Rs 270 the stock has run up a lot almost from Rs 175 to Rs 270 in a matter of two months. Maybe the stock could take a breather, but who knows the stock may surprise on the upside if this is purely due to operations.

Goel: We would be overweight on the auto space now specially with the monetary policy view that we are holding. The two wheeler numbers continue to be quite positive. We would expect a volume growth of somewhere between 10-15% for the two wheeler space. I think also the commercial vehicles will kind of bounce back as and when the industrial growth recovers and the agri incomes and agri rural incomes have been holding up quite well. The agri equipment space and the agri automobile space again look very interesting. So, net-net, we would be positive on auto and auto ancillary companies at this point of time.

Q: What is your call on Cipla ?

Sukhani: Cipla in any case had the slightly indifferent charts and it was the least preferred of the three-four pharma companies at the top. So today it has reacted to the news. I think its best left alone. I won't say it is bearish, but there is nothing to buy here.

Shah: The stock could actually correct a little more, but the results have been reasonably okay actually. So the stock maybe after this correction may correct a little bit, but I think the worst seems to be over for Cipla from hereon. The stock should move up after that.

Q: What about the banks? SBI has done well. Many of the public sector banks have started doing well for the last few days. Is that a space that you would be overweight?

Goel: As far as the asset quality of some of these public sector banks is concerned we might have seen the worst or quarter four will see the worst in terms of asset quality. Going forward definitely we would see some kind of a pick up as and when the interest rates come down. For the credit growth numbers, we would expect a 15-20% kind of a number and some of the midcap PSU bank names have been beaten down very badly and they are trading at less than FY13 book.

So definitely there is a big upside potential in the selected PSU banking names. One has to take a look in terms of what they are holding on their balance sheet. Banks which have airline exposures or big exposures to some of the defaulting SEBs need to be avoided but as a sector in general the PSU banking space looks quite good.

Shah: We have booked out of SBI. We entered very early around Rs 1,700 levels and we did book profits around Rs 2,180 levels or so. But what the managing director said after the results were declared that the worst is over probably that may keep the stock in some action for a while. So, the statement was very clear that the worst is over for SBI. All the asset issues are behind us. That has lifted the sentiments of the stock today and may be it could go a little up from here on.

The one space which is related to banking, sort of finance which we are looking at very closely and where we have built up some positions is insurance business. That in 2012-13 could be a year where HDFC Standard Life could come out with a IPO and would re-rate many of the companies which are into insurance business be it Aditya Birla Nuvo or Max India or Bajaj Finserv, we have built up small positions in Aditya Birla Nuvo and Bajaj Finserv. Even FDI in insurance also could be hiked actually.

Q: What would you pick from the ADAG basket?

Sukhani: The only stock we should look at is Reliance Communications . Reliance Communications is going through a rough patch, but it will get over it. I would not touch the other ADAG stocks at all in spite of these small rallies because all the time we must remember the context from where they have fallen. Reliance Capital fell from Rs 2,800. So at Rs 400 odd it's not a buy, not yet.

Chelsea Saldanha
chelsea.saldanha@network18online.com