David Pezarkar, head-equity of Daiwa Mutual Fund says, the IIP numbers have been a disappointment. He is positive on pharmaceutical and the textile sector.
In an interview on CNBC-TV18, David Pezarkar, head-equity of Daiwa Mutual Fund says, the IIP numbers have been a disappointment. “The IIP has generated some hope that we will see further monitoring easing down the line. But I think the inflation numbers are slightly more important. So, overall, I would think that the RBI would tend towards some monetary easing, whether it’s a CRR cut or an interest rate cut or a combination of that,” he adds.
He is positive on pharmaceutical and the textile sector. “Amid all the macroeconomic problems, we are finding value in some capital goods stocks. Ofcourse these are not two quarter stories, some stocks with strong balance sheets and with high dividend yields, I think one can take a sort of a contrarion bet there,” he adds.
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Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Also watch the accompanying video.
Q: What have you made with the IIP data that came out for the month of April along with the fact that we are now heading into inflation data on Thursday, Greek elections on Sunday and then we have the RBI on Monday? How exactly would you approach the market with all of these events lined up?
A: This is a very event heavy week. The IIP numbers have been a disappointment. They have generated some hope that we will see further monitoring easing down the line. But I think the inflation numbers are slightly more important. So, overall, I would think that the RBI would tend towards some monetary easing, whether it’s a CRR cut or an interest rate cut or a combination of that. But largely that will be more of a sentiment booster. We all know that there are so many other regulatory bottlenecks which also need to be cleared. But I think incrementally when we see some further monetary easing, that will be positive as far as the Indian market is concerned.
But then ofcourse we have to also tackle with this uncertainty coming out from the Euro zone. What is the outcome of the Greek elections and what will happen after that is extremely difficult to foretell. But I think from the action that the 100 billion euro commitment to the Spanish banking sector shows that the European authorities are committed to preserving the Euro integrity and preventing the contagion from spreading to the banking sector. So, that is also a positive sign, but it doesn’t clear all the doubts that one has.
Q: How are you reading the reversal in the market? We were down 60-70 points before the numbers came. The IIP numbers, which were quite bad, have led to a total of a 100 point rally in the Sensex. What's the market factoring in? Do you think they are factoring in something more than just 25 bps? What accounts for this reversal?
A: Partly it is because the retail investor interest in the market is at extremely low levels. So, there is not open position in that sense. Also, FII selling or FII participation has also been low. Infact we have seen FII interest in some individual stocks. So, per se you could say that there is lack of selling. And ofcourse then there is this hope that we will see monetary easing down the line and also, we will see that some political positives in the sense that the government taking some positive steps etc. So, I think it’s based more on hope and lack of selling one could say.
Q: There has been a lot of news with regards to the IT sector in the past couple of days. There were the management meets which were conducted by analysts from Wipro and TCS as well. It seems like the consensus was that it is a cautiously optimistic demand environment at this point in time. How exactly would you approach the IT space, Wipro down around 2%?
A: I too would tend to agree with most of the managements because there is just too much uncertainty in the underlying business conditions. But the only positive is the 20% depreciation of the rupee. So, I think I would stay neutral on the sector. I wouldn't be too bearish. I would expect to see some pick up in terms of underlying demand. But I think that will be second half oriented. The rupee is the only positive there.
Q: What would you buy in now? At what levels would you buy, 5,000 or would you wait for lower levels?
A: We are incrementally more positive on all the sectors, which are benefitting from the rupee depreciation. So, we would tend to look at the pharmaceutical sector positively and the textile sector also positively. Amid all the macroeconomic problems, we are finding value in some capital goods stocks. Ofcourse these are not two quarter stories, some stocks with strong balance sheets and with high dividend yields, I think one can take a sort of a contrarion bet there.
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