Post Q3 earnings, Religare Cap's best bets: RIL, Hero Moto

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Post Q3 earnings, Religare Cap's best bets: RIL, Hero Moto

It is not been very bad third quarter performance of most of the companies announced till now. However, Reliance Industries results was very disappointing along with the dampener buyback offer.

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Excerpts from Bazaar 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

It is not been very bad third quarter performance of most of the companies announced till now. However, Reliance Industries results was very disappointing along with the dampener buyback offer.

Manoj Singla of Religare Capital Markets is positive on RIL as he feels the buyback will support the stock. In an interview to CNBC-TV18, Singla explains, "We are positive on RIL, we believe the GRMs have bounced back and we think going forward the operating performance will actually improve plus the buyback should provide some support to the share price. On a 9-12 months horizon, we are actually positive Reliance."

As an investment strategy, he advises buying Hero MotoCrop in the two-wheeler space. Among the IT stocks, he prefers Wipro while Hexaware and MindTree are his favourites in the midcap IT segment. He also likes HPCL and BPCL at current levels.

Here is the edited transcript of the following. Also watch the accompanying video.

Q: How did you read the Reliance results and what would you do with that stock at Rs 760 now?

A: Reliance numbers are obviously weak and the stock is showing you that. As a house, we are positive on Reliance, we believe the GRMs have bounced back. Going forward, the operating performance will actually improve plus the buyback should provide some support to the share price. So, over a 9-12 month period, we are positive on Reliance.

Q: United Spirits had a bad reaction to its results; the stock is down 5% today. How would you read into the numbers?

A: Yes United Spirits numbers were much below estimates of consensus as well as ours which is why we are seeing the correction. Fundamentally, on a 9-12 month view, United Spirits is a story that we like. There have been bigger issues related to the whole debt. So once those issues get sorted out, United Spirits would look good from current levels.

Q: What have you made of this big market rally in January? Fundamentally, can you support much higher levels from here on?

A: Obviously. Most investors look at this rally as a dead cat bounce saying that the market was oversold and so we have seen the rally that we have seen now. According to me, it is very difficult to say whether the rally will sustain and what is important to wait for the UP elections and the budget. If we do see some kind of reforms, some kind of movement on the policy paralysis side, clearly this rally could be sustained and market could move up much higher.

On the other hand, if we get disappointments on that front we could see the market retreat. So just in terms of a rally, given that we were oversold, I am not surprised but whether we can sustain it will depend on what happens on the fundamentals and the politics side.

Q: How much importance would you give to the policy tomorrow for the sustainability of this rally?

A: Tomorrow, there is not too much expectation in terms of getting at least repo rate cut. There are some market participants talking of a CRR cut. If we don't get any of these rate cuts, I still don't think the market will react too badly because there are not too many expectations on that.

On the flip side, if we do get a repo rate cut, the market might actually rally from there. So just in terms of event tomorrow, I do not see it impacting the market too much because expectations are already pretty low.

Q: Flows have been very strong, Rs 6000 crore in the cash market and Rs 6000 crore in futures market as well in 15 days. Do you see that continuing from what you hear from the sales desk?

A: If you look back as to where the flows are coming from, first thing to highlight is this is not an India specific phenomenon. If we look at globally, almost all overseas markets have rallied in January and this can be attributed to a lot of money printing that is happening in the Eurozone.

So similar to what happened in 2009, if you continue to get too much of liquidity into the system I would not be surprised for equity markets globally to keep on rallying. So there is money printing happening, therefore equities are going up and as of now the trend looks intact.

Q: L&T numbers coming today, are you expecting a disappointment or is it in the price?

A: Expectations are pretty low on the L&T numbers, almost everybody on the street expects them to come and cut their guidance further. I don't think numbers are expected to be that great. Again structurally on a 9-12 months view the stock looks pretty cheap at Rs 1000. It came in a smart rally from there. But if it was to correct back to around Rs 1000-1100, I would be a buyer at those levels.

Q: What about Coal India , which has had a good come back from Rs 300-340 plus but off late the news on pricing seems to be worrying investors again?

A: Structurally, we have been negative on Coal India, and obviously, when the stock went below Rs 300, we thought it was oversold. But the fact remains that there is no clarity on what will happen to the pricing and now they are talking of rolling back some of the price hikes that had been given at the beginning of this year.

So we'll continue to wait and watch on what happens to the policy side. But fundamentally, we have been negative on Coal India and continue to remain so.

Q: Maruti , despite numbers today which may not look good, do you think the worst is building to the price?

A: Probably at Rs 900, yes, but the way the stock has rallied in the last couple of weeks at the current share price, we think that there is some more time before Maruti can give you a sustainable rally. So we would actually wait on Maruti, it is more of a hold for us but if you have to ask me whether I should go and buy Maruti at current price, the answer is no.

Q:  Post the rally, where a lot of stocks have gone up 15-20%, where would you tell your clients to trim some of the positions now?

A: Some of the stocks like Coal India, lot of power and infrastructure names which while they have given a smart rally from the bottom, fundamentals have not changed and are not expected to change anytime soon. So we are asking clients to trim positions in power, infrastructure and realty names where you have seen a rally from the bottom.

Q: What are you telling them to do on the private sector banks which have come up quite a bit?

A: On a one year view, banking is one sector, which we are pretty positive on. Our view is that some point through this year you will get the rate cycle easing if not tomorrow and may be in March and more rate cuts after March as well. So, on a one year view, we are actually pretty positive on the banks sector and we like both the private sector banks as well as state owned banks. I would be accumulating banks on each and every dip over the next 3-4 months.