UBS Sec: Good level to enter mkts, suggests stocks

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UBS Sec: Good level to enter mkts, suggests stocks

In an interview with CNBC-TV18, Suresh Mahadevan, Head of Research at UBS Securities, spoke about his reading for the markets.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Nifty volatile; pvt banks, oil & gas down, tech, metals up Asset markets indicate greater weakness: Nomura See downside risk in global mkts: Bank Julius Baer 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 Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Steel Authority of India | Hindalco Industries | Sterlite Industries (India) | Maruti Suzuki India | Tata Motors | Mahindra and Mahindra | Larsen and Toubro | NCC | Hero Motocorp | NTPC | Adani Power | Tata Power Company | Punjab National Bank | Bank Of Baroda | ICICI Bank | Infrastructure Development Finance Company | HDFC Bank | Lanco Industries | Zee News |

Indian markets have been trading volatile for a number of days. Weak overseas cues led primarily by the debt crisis in Europe, weak American data, and tightening by China have been weighting on sentiment here. The Nifty has been trading in a 100-150 range for the last few days without any indication of where it might head going forward.

Suresh Mahadevan, Head of Research, UBS Securities, remains bullish on the market. Explaining this rationale for the same, he says the Sensex has an earnings per share of Rs 1,125 in FY10, which is a good level to enter the market. Investors, he advises, should use every correction as a buying opportunity.

Mahadevan is neutral on the steel sector and likes Hindalco and Sterlite from the metals space. He feels it is an interesting time to look at L&T .

On autos, he cites interest rates and raw material cost as concerns. But he is still positive on the sector and is bullish on Maruti , Tata Motors , and M&M .

Below is a verbatim transcript of an exclusive interview with Suresh Mahadevan on CNBC-TV18. Also watch the accompanying video.

Q: What have you made of the volatility of the last couple of weeks? Is it a buying opportunity for you or would you tell your clients to wait by for better entry price?

A: We continue to be bullish on the market. Corrections are part and parcel of any market movements. Most of the correction in India is likely to come through global cues as we have seen. The latest words going around are sovereign defaults and things like that. However, we would expect long-term investors to come into India because if you are a global or even a global emerging market investor, you can no longer afford to ignore a market like India because the long-term fundamentals seem to be very good.

Structurally, we have a huge demographical advantage, which will translate into economic growth and you combine that with a stable government. You have definitely ingredients for a very good strong economic recovery lead market gain kind of a thing. Certainly, we would be recommending investors to get in on declines. We are focused on certain factors. It's not like just buying the market as such but it's a buying opportunity in my view.

Q: What do you hear about the selling pressure though because some people are tending now to look at the past 11-12 days almost as a sign of global a capitulation? Would that be too extreme you think and is most of the selling pressure behind us?

A: Certainly selling is coming through and it is a bit surprising. At a higher index level, for the first 15 days of January you actually had buying coming through. At a lower index you are seeing selling which just tells you that both sentiment and liquidity are pretty much global.

However, we may want to believe India is to a global economic slowdown. The reality is sentiment and liquidity is quite global unfortunately. According to me, that is not just India but if you look at the whole emerging markets money flow, it has turned negative.

India certainly is one of the bigger markets there. The global cue lead weakness is perhaps a blessing in disguise which gives the market time to consolidate because what we are quite positive about is the data points coming out of India could still show a lot of positive momentum. India along with China will probably be the bright spot in the emerging market where investors would want to be positioned.

Q: What convinces you this is a good level to be buying at that valuations have become so attractive or it's a tactical call you are taking expecting to see a bounce from oversold levels?

A: We have been bulls since October 2008. Fundamentals have changed for the better in India in terms of the economic recovery being borne out by data points and the presence of a stable government.

Since the markets are falling, the fundamentals are not deteriorated. The economic recovery is still going to be strong. The corporate earnings are still going to recover. To that extent, we would visualise any correction as a buying opportunity. Our valuations, which are one of the drivers for markets, are not cheap. We are looking at probably 1,125 kinds of earnings per share (EPS) for the Sensex. Slightly below 16,000 we are looking at 15 times earnings or something like that.

According to me, it's a good level probably for investors to buy into certain Indian stocks especially if they long-term oriented.

The markets can go down in the short-term further but over one-three year period there is a lot of value still in the market in terms of select stocks which we can buy. I would hope that investors utilise this as an opportunity to come in and maybe if at all not too overweight at least become neutral on India.