No guarantee of only upside to RIL: HDFC Securities

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No guarantee of only upside to RIL: HDFC Securities

Answering investors’ queries on CNBC-TV18, VK Sharma of HDFC Securities said that there is no guarantee that there is no downside risk to RIL, but the outcome of the AGM is one to watch out for, especially on the KG-D6 and the new wireless business fronts.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » Reliance BSE | NSE 29/05/12 Are Mutual Funds betting on Reliance? Other Stocks in this news Hindustan Unilever | Procter and Gamble Hygiene and Health Care |

VK Sharma, Head, Private Broking & Wealth, HDFC Securities says that small investors could put their money in exchange traded funds which track the Nifty or Sensex. Answering investors' queries on CNBC-TV18, he says that there is no guarantee that there is no downside risk to RIL, but the outcome of the AGM is one to watch out for, especially on the KG-D6 and the new wireless business.

Below is the verbatim transcript. Also watch the accompanying video

Q: A word on Reliance Industries. What you are expecting from the AGM today? And more importantly, for an investor with 2 year time frame to enter into the stock, would this be a good opportunity or would you advise entering into something like an Infosys or an SBI?

A: I think one shouldn't expect too much from the AGM. The AGM would obviously talk about the Dish TV and other businesses. But the markets will be more interested in the main question (on production ramp-up at KG-D6) which is unlikely to be answered. Even if Ambani does give a particular date one year down the line or indicates a reason as to why it was down, the figure is still high.

We could be hearing something on the BP front. In case the company gives a guidance as to by when it will become operational and how much gas (LNG) would flow in from imports, it will bring some kind of a confidence back to the stock. More importantly, it will buoy the pipeline companies and the companies that are going to use gas. It is going to be good for the whole economy. I am, however, more gung ho on the new wireless business. If firm plans are given on that, then it will bode well for a lot of companies in the IT space to rise earnings substantially in the coming two years.

To answer your investor's query, a lot of risk is already priced in into the Reliance stock. That does not mean there is no downside to the stock. I would suggest partial buying of this stock. My advice would be that small investors put part of their money into the Exchange Traded Funds (ETF) which tracks either the Sensex or the Nifty. You will have no problems whatsoever because if the market goes up, your portfolio will appreciate.

Q: End of the earnings season now. What are you working with in terms of hits and, in downturns or even at current levels, where will you deploy your cash?

A: We are following a very simple strategy. We strongly believe that India will do well in the next three years. We suggest investors put money in the index funds, instead of buying individual stocks. For the last four years, the market has not gone anywhere. If a person had simply invested systematically in the Nifty since its highs in January 2008, the value would have been almost 22% plus instead of PE minus 12.

Q: Our caller purchased 50 shares of HUL at Rs 290.80. If he has a price target of 15% profits to book it, is this right to sell or should he retain it further?

A: Lever gives you sharp returns quite quickly. Since the investor had a target of 15% and the stock currently quotes at Rs 318, why doesn't he put in a stop loss of Rs 315 for half his portfolio? First of all, P&G and HUL are huge corporates and permission for the deal is not through yet. Secondly, in case the takeover happens only in the US but doesn't happen here in India, there is no upside to the current investor unless open offer is made here. That also may not be compulsory unless they takeover equity too.