May 04, 2013, 01.46 PM IST
Book profits in HUL and wait for a few months for a good accumulating opportunity in cement stocks.
A day after the Reserve Bank of India cut repo rates , or the rate at which banks lend from RBI by 25 basis points (bps), Gautaum Sinha Roy of Motilal Oswal believes that the banks will cut interest rates, or transmit the repo cut to consumers in the second half of the year.
"We expects interest rate in the system to come down and companies and consumers will benefit directly from those kind of cuts," he said in an interview to CNBC-TV18.
On specific stocks, he suggested investors to book profits in FMCG major Hindustan Unilever ( HUL ) as the stock has seen a good run-up in the past week. HUL rallied almost 23 percent after its parent company Unilever Plc announced a 22.5 percent voluntary acquisition of stake .
Key cement players - ACC , Ambuja Cement , Heidelberg Cement declared subdued results last week, so he advised to stay away from the pack for the time being. He feels one should wait for a few months for a good accumulating opportunity.
"Monsoons are now expected to be normal this year which itself should give some boost to cement demand especially on the rural side. This coupled with an interest rate cut transmission in the overall economy, would also give a boost to the infrastructure segment and cement included in that," he explianed.
Below is the edited transcript of Roy’s interview to CNBC-TV18.
Q: In the week gone by we had the Reserve Bank policy, the street was a bit disappointed with the hawkish tone that the Reserve Bank laid out. What were your key takeaways and how would you extrapolate that into the week that is coming up?
A: The key thing that is building up this year with all the rate cuts from Reserve Bank of India is the lack of transmission in the system. Banks have clearly come out after the RBI cut saying that this is not enough for transmission and some of them have been saying that cash reserve ratio (CRR) cut is needed for the transmission to happen. So, that effectively will mean that the interest rate sensitives sectors will not really benefit much from the rate cuts although the signaling effect is there, Hopefully, over a period of time, the transmission will happen but on an immediate basis we don’t see that impact happening.
The hawkish tone has been maintained saying that there is little room for monetary easing going forward in the current state. However, with crude prices and gold prices correcting the way they have last month, we should expect sustained downtrend in commodity prices to reflected in lower inflation. This will result in lower current account deficit as well as fiscal deficit.
This month one of the key things that has changed is the overall macro situation for India. The situation is largely global in its parameters and has changed for the positive so, that itself is a big positive that should play out in terms of lower interest rates over a longer horizon. It will not be immediately but that should happen eventually. Probably in the second half of the year, we should expect the interest rate in the system to come down and the companies and the consumers to benefit directly from those kind of cuts.
A: People who have been holding this stock for a long time could tender a bit. The one thing to watch out would be, would the institutional holders give up their stock. This does not seem to be the case. So, one really believes in long-term appreciation. From the Indian consumer play perspective, HUL continues to be a good story but from a near-term perspective, given the good run-up the stock has seen, it makes sense to book some profits.
A: We like Idea Cellular a lot because of the decreasing competitive intensity in the Indian telecom space and we have seen very good quarterly numbers coming in from Idea with strong quarter-on-quarter traction in traffic. We also expect the realisations to bottom out and will expand from here. So, we continue to be positive on telecom and Idea within that.
On the short side we could selectively look at some of the metal stocks like GSPL.Given that the whole outlook for metals globally is weakening and uncertainties about domestic issues around coal remain for GSPL, so that will be one stock in the short side.
We also liked Dabur a lot on the long side but that has moved up quite sharply. At this price there maybe not much of an upside, but if we see some bit of correction in Dabur, below Rs 150, that would be another good stock to accumulate.
Q: Wanted your thoughts on the cement space because by and large the numbers have been quite weak be it Ambuja Cement, Heidelberg Cement or even something small like Mangalam Cement that reported so much weakness. Do you foresee an extended period of pressure for the cement sector?
A: A lot of the bad demand situation that has been there should be by and large over because we are establishing a low base now. Somewhere, the demand has to come back in the system.
The other key point is that monsoons are now expected to be normal this year which itself should give some boost to cement demand especially on the rural side. This coupled with an interest rate cut transmission in the overall economy, would also give a boost to the infrastructure segment and cement included in that.
Monsoons are probably the time when cement demand and hence cement stocks remain weak. One could wait a couple of months and start accumulating these stocks around that time for the uptick in the demand that should come in after monsoons towards the end of this year. That would be an interesting space to watch out for maybe another couple of months and then we could start accumulating cement stocks.
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