Mkt needs to consolidate before making next move: Daiwa MF

Excerpts from Closing Bell on CNBC-TV18 Watch the full show »

The market has witnessed a strong since the beginning of 2012. David Pezarkar of Daiwa Mutual Fund says, after the recent run-up, he will be cautious. "Since we have had such a sharp rally, I would think that the market needs to consolidate just a little bit before making its next move," he adds.

Market next week: It's time to be cautious now, say experts

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.

Q: From 5,500 to 5,600, it was two days of pretty short rally, what does it look from here on?

A: Since we have had such a sharp rally, I would think that the market needs to consolidate just a little bit before making its next move. So, I would expect a little bit of a correction or a consolidation.

Although we are still optimistic on the market per se, but I think from this point onwards it's going to be more of bottom-up, it's not going to be the entire sector running. So, I think investors will have to be a little cautious now and pick the right stocks rather than the high beta sectors per se.

Q: What would you pick up as a bottom-up approach?

A: We will also see some sort of rotation into the stocks and sectors, which have not participated so far. We are already seeing some sort of rotation into IT. So, a little bit into the high growing pharma stocks is also possible. Within the capital goods space, any stock that is likely to see consistent growth in its order flow going forward and has a strong balance sheet. I think those are the stocks, which should be preferred from this point onwards because the highly leveraged stocks have already seen a sharp run up. I don't think that they are likely to sustain much more from hereon.

Q: Do you think it's time to book profits, if anyone is already long in any of the infrastructure, real estate names?

A: I would think so, particularly for the real estate names. I am not too sure that with crude at USD 120 per barrel, we are going to see easing commodity price pressure. So, although the headline inflation numbers might actually fall, we might see over the course of the year about a 100 or 125 basis point kind of a cut. But we are still not seeing any signs of real demand emerging.

As of now, this rally is largely based on hope. So, I would be very selective here. I think we are going to see the underlying numbers only may be two-three quarters down the line. So, I think there is a higher probability that we see atleast a little bit of a profit booking at this point. So, I think people should definitely be cautious, stay at the sidelines atleast for the next two-three weeks or so.

Q: What about the metal pack that was pretty weak till a few days ago. Today, it saw some amount of movement, anything that's standing out over there?

A: If you look at the base metal prices, they are not really strong. So that seems to suggest that the generalised assumption that we will see a risk-on trade is not holding true, atleast as far as the base metal prices are concerned. So, here also one has to be absolutely stock specific bottom-up. I would look at selective names in the nonferrous space, but maybe at 7% or 10% lower from current levels.

Q: Would be a buyer in any of the cement names? We have been hearing about how cement prices have been upped in North India.

A: The cement companies are not exactly trading at the cheap valuations, if you atleast look at the larger names. If you look at their valuations on an EV per tonnes basis then I think they are trading above what the replacement cost will be. But I think over the course of the next three-four years, we are going to see a more balanced supply and demand situation. So, cement names are likely to continue to remain strong. I would definitely be a buyer, but I would look at the smaller size companies because they are cheaper than the larger names.