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Last Updated : Jul 15, 2013 08:36 AM IST | Source: CNBC-TV18

Private banks, pharma, IT to post good Q1 nos: Dipan Mehta

Dipan Mehta, member, NSE & BSE says pharma companies are likely to post positive Q1 numbers on the back of rupee weakness.

Indian currency market needs to see some stability before one can be optimistic on its performance says Dipan Mehta, member, NSE & BSE. In an interview to CNBC-TV18, Mehta sees 6100 as strong resistance for Nifty.

Also read: Dismal exports, IIP data deepen India's economic gloom

On how he expects the earnings season to pan out, Mehta says private banks are likely to post positive Q1 numbers after IndusInd Bank, that kick-started the earning season, announced positive net profits.

He also expects pharma to do well on the back of better export revenues due to the steep fall seen in the rupee. "These companies have been market leaders over the past quarter or so and investors are building in a lot of expectations for pharmaceutical companies, especially the way the rupee has been declining," adds Mehta. 

Below is the edited transcript of Mehta's interview to CNBC-TV18.

Q: Last week was important because we broke out of that much talked about trading range and we closed above the 6,000 mark. Are you getting a sense that the positive momentum will continue into next week as well?

A: Last week’s movement was more to do with global factors and the whole last week saw the rupee under pressure.

For us to get more optimistic and bullish for levels beyond 6,000 and 6,100 and for the market to scale to new highs, we would have to see some kind of stability coming into the currency market. This is because the rupee usually starts on a low key and then towards the middle of the day or at the end of the day, sees major selloff coming in.

The volatility or the momentum with which the rupee falls versus the dollar, demonstrates that there is a bit of panic in the forex market and unless we do not see some stability over there, the equity market will remain under stress. However, the numbers which we got for trade deficit were indeed quite heartening and we need some more follow-through of such numbers going forward as well to bring some kind of calmness and confidence back into the currency market. That in-turn will percolate to the equity market and we may have more participation at higher levels. Just the way the market is, I believe 50-100 points higher is where the Nifty will face a lot of resistance.

Q: Next week we will get into the thick of earning season, we have lots of heavyweights, there is Reliance Industries at the end of the week, Axis Bank, Bajaj Auto etc. which is that one or two companies that you are looking forward to in terms of perhaps delivering better than expected numbers and maybe you can even advice buying into the stock ahead of its earnings?

A: We had good numbers from IndusInd Bank which signaled what kind of numbers will be coming  from other private sector banks. So, the likes of Kotak Mahindra Bank, HDFC Bank, Yes Bank, Development Credit Bank (DCB), will post better results than what the street is expecting and that will keep the momentum for private sector banks.

Infosys’ results on Friday signals good times for the IT companies because the company has been a laggard in the industry and with the kind of volume growth that they have experienced, it may mean that some of the other IT companies, midcap, largecap may also may come out with volume growth as well better-than-expected topline-bottomline.

The real numbers to watch out for would be the pharmaceutical companies. These companies have been market leaders over the past quarter or so and investors are building in a lot of expectations for pharmaceutical companies, especially the way the rupee has been declining. So, exports sales too will play their role in terms of increasing revenues as well as bottomline.

These are the three baskets which could be quite interesting. However, we need to keep in mind that the best results come earlier and then the disasters and the accidents start happening later. So, let’s not get a bit ahead of ourselves and let’s wait and watch how this earning season completes itself towards middle of August.

Q: Mangalore Chemicals and Fertilisers rallied 30 percent last week and bidding war is getting hotter now. Would you buy that stock at these prices?

A: The fundamentals do not justify the price but it is event driven and whenever the price war, bidding war happens, the stock price could go higher. And at the same time, if there is some kind of settlement between the interested parties, then one could see a sharp correction as well. So, it is a bit of a traders delight and one should know when to cut the losses if he is trading in the stock. I do not think it make any sense at these prices from an investment point of view.

Q: For the slightly medium-term what is your view on what contribution the IT sector would have in the index if the index moves up higher, do you think IT will be a big contributor after what you saw with Infosys earnings at least that worry seems to be out of the way for now?

A: The leadership has to move to IT and then we have pharma, which has been doing well over the past two-three months or so. So, that also could gain further momentum. The entire trade has shifted from domestic oriented interest rate sensitive sectors to the export oriented sectors and IT and pharma are the top exporting sector. So, investors will tend to get more focused and one could expect positive news flow from companies within that sector.

I think investors will start getting overweight in those two industries and maybe within IT,  after one has seen the kind of run which we have seen in Infosys, a lot of action could shift to the midcap stocks. We have seen that when the Nifty starts trading above 6,000 for a long period of time like two-three weeks or so, a lot of action does shift to midcap stocks and retail investors do tend to enter the market and that makes midcap stocks quite attractive. So, within the sectors which are performing, typically retail buys the tier two-tier three stocks. Infosys has done well within the IT, I think next round maybe a week, fortnight down the line, one could see the action shifting to a lot of midcap IT as well and the same would apply for pharmaceutical companies.

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First Published on Jul 13, 2013 01:44 pm
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