Why is First Global negative on metal, oil sector?

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Why is First Global negative on metal, oil sector?

In an interview with CNBC-TV18, Devina Mehra, Director of First Global, spoke about her outlook on the markets.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Nifty above 5200 on global cues: RIL, ICICI Bank up See Nifty around 5250-5300 closer to expiry if RIL supports 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 Reliance BSE | NSE 29/05/12 Are Mutual Funds betting on Reliance? Other Stocks in this news NTPC | Infosys | Hindustan Unilever | Tata Motors | NMDC FPO | Cairn India |

In an interview with CNBC-TV18, Devina Mehra, Director of First Global, spoke about her outlook on the markets.

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

Q: We have been range bound for so long. Are we about to breakout of this range? Do you see this range continuing for longer?

A: If you look at the market moves over the last few months, there have been quite a few remarkable things. One is that it has been range bound not just for a week or a month but for better part of nine to ten months. The moves have been within very few sectors like metals, autos, IT and capital goods. The most interesting thing is that our markets have tracked global markets and particularly emerging markets very closely. Some would say different fundamentals if you compare India or China growth rates to US.

Logically they should have done much better, but that's not happened. Within the emerging markets pack, you had Brazil and Russia, where you had huge commodity exposures. The gross domestic product (GDP) growth numbers there have nowhere been close to what we have seen and yet we have performed no better. Since July we have been underperforming the US. So there seems to be more global than local factors at play which we sometimes forget without focus on what's happening within our companies, sectors and economy.

Q: Local cues have been supportive for our markets and the Budget got us all the way to 5100. Is there a chance that earnings can help us break the range on the upside?

A: Many of the local cues have been positive that's why it is so remarkable for our markets to track global markets so closely. A post-budget rally was in tandem with what happened globally. So we had good GDP, Index of Industrial Production (IIP) numbers or budget which looked quite fine. You had not broken away from the rest of the market. So that is an interesting bit.

As far as the earnings is concerned, if you look at the headline numbers, they have been better than what we think they have been because you had these few companies with new businesses coming on stream which skewed the numbers. If you take that out and the fact that you had a very low base for the comparables last year, the numbers have not been as good as they should have been.

The IIP and the headline numbers in January are very good. However, if you look at sequential, month on month, you see a decline this January as compared to a slight expansion that you saw in January 2009. You will adjust for the foreign exchange (FX) losses in the same period last year. Numbers have not been spectacular barring a few industries that are also the industries that have done well.

Q: There is a flurry of bullish voices on Reliance. What is your call on the stock?

A: We don't think that the fundamentals are that great relative to the valuations because we are not very positive on oil. Reliance now is fairly correlated to the oil cycle on the positive side. Hence, we are not very positive on anything like Reliance, Cairn , etc. because of our view on oil.

If you look at the largecap universe, there are a whole lot of companies where we think that the valuations are not justified at much higher levels, whether it is the telecom companies, banks, Reliance , or power utilities like NTPC . So those would act as weights on the largecap side.