RBI policy, budget to help hold 4500: Prabhudas Lilladher

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

For the near-term, joint managing director of Prabhudas Lilladher, Dilip Bhat tells CNBC-TV18 that events such as the RBI policy and the budget will help the Nifty hold the 4500 level. "The pre-budget rally may be 300 points give and take, so may be around 5000 is the level at which I would be looking at," he said.

However, due to the impact of the slowdown on the economy, Bhat believes the Nifty could fall to 4000 levels within six-nine months.

Going into the earnings season, Bhat says that Nifty companies could see a 5% growth in profits, with IT being the frontrunner. "We are not too sure how the rupee has been hedged by several companies, so that really makes me a little worrisome, but otherwise it is the IT which really will lead the pack and will set the tone," he explained. He further adds that it is better to be stock specific this time round.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: How do you see the next couple of months? Do you see the possibility of the Nifty getting past 5000 or do you think the 4500 lows will be breached eventually?

A: We have an RBI policy coming up, which will probably set the tone for the reduction of the interest rates or may be the expansionary monetary policy, and then the budget. So probably I would play for a pre-budget rally during which this 4500 will hold on for sometime to come.

But eventually, may be over next 6-9 months, I think 4500 should be breached and the impact of the slowdown will be very conspicuously felt across the economy. That itself will gradually bring the Nifty down to around 4000 levels may be over 6-9 months.

Q: In the near term, how much strength do you think that pre-budget rally could have for the index?

A: The pre-budget rally which I am talking about may be 300 points give and take some 20 odd points. So may be around 5000 is the level at which I would be looking at. Maybe the talk about some economic reforms will probably add fuel to the fire and also may be inflation also.

Q: The most volatile run off late has been on the auto space. How are you calling that entire sector and what remains a buy over there for you?

A: That sector has been quite volatile; we have seen two-wheeler numbers also getting into the reduction mode. But overall, Tata Motors has still been a surprise as far as volume numbers go. So in that space, I would still play considering the fact that the interest rates have to come down and we are not very gung-ho on the commodity prices going up.

Maruti has really taken it on the chin for whatever reasons of a strike, and this third quarter is what everybody knows is going to be a wash out. But I would still play for Maruti on a risk return basis. Even M&M would be a reasonably good bet and may be at the current levels. And because of the way it has come down largely because of the exports and the rupee depreciation, Bajaj Auto can still show a reasonably good growth momentum for a year or two.

Q: What are you expecting from this earning season? The first few will be from IT and how will it progresses from there on?

A: We have seen the numbers and we are just in the process of finalizing. Just on an overall basis, may be we are seeing a 5% growth for the Nifty companies in the profit growth. Coming to IT, IT will largely be the front runner or leading the growth momentum. We are not too sure how the rupee has been hedged by several companies, so that really makes me a little worrisome, but otherwise it is the IT which really will lead the pack and will set the tone.

Going into the fourth quarter, may be you will see Infosys reporting a 40% year on year growth. On a quarter to quarter basis it will still be a healthy 15-16% bottom-line growth. So the entire IT pack, even in terms of volume numbers, will look reasonably good and the bottom line number largely supported by the rupee will look much better than that. So IT will be there.

Even the autos will be a mixed bag. You will have a Hero Motors , Bajaj Auto , M&M reporting reasonably good numbers. But more than sectors, I would still go a little based on the stock specific line rather than going on sector wise.

Q: Would you buy anything from the gas space? While many of them have been underperformers, Cairn India has been a huge market performer in these last few days?

A: I would still go with Cairn on GAIL ; I am actually a little surprised that GAIL is falling. May be for a year or two, they had a cash mismatch probably because their capex was more than the cash they were generating. But I would still think that GAIL is particularly safe and defensive. At the same time, because of the kind of expansion that they have put in place and the returns which are linked to the expansions, I would still think that GAIL at these levels would become good attractive bet.

But apart from that, I would still play for the other two stocks, which is Petronet LNG and Indraprastha Gas , which will continue to be a very steady story, a steady growth of may be 15-20% at the bottom line and may be ROE of around 23-24%. So those are slightly smaller market cap companies but they would still be better, but in the front line GAIL appears to be still the pick of the lot.

Q: From infrastructure, any thoughts on GMR in specific?

A: Not really. There could be some news based movement on the stock, but I don't think I would still be looking at GMR. I would stay away from GMR.

Q: How do you approach names like United Spirits and United Breweries ?

A: Unless and until there is some strategic sale which happens in some of these companies, which can really lift their valuation to different levels, these stocks will continue to remain very vulnerable. Even if you take United Spirits, if you look at their balance sheet, they are over leveraged at the moment despite the fact that the growth is good. I don't think that the debt levels give any comfort, especially the very fact that they are a part of the collateral of Kingfisher. So those worries will still remain.

Both the stocks will remain vulnerable and the strategic valuation lifts it to a different level. So I would not bet on them and if there is something in the portfolio I would look to exit.