RBI can change mkt mood; buy Titan, Jubilant: Dron Capital

The Reserve Bank of India is in a position to change the mood in market despite the Cyprus knock catching investors unawares, says Pathik Gandotra, Partner, Dron Capital Advisors.

Speaking to CNBC-TV18, Gandotra said if the rate cut happens, public sector banks will recover. On private banking space, he advises traders to wait for details as some of them have been hit really hard in the wake of Cobrapost expose. Gandotra is not bullish on any of the government companies that are coming up for divestment, but prefers Coal India to SAIL. He also advises accumulation of stocks of Titan which is available at reasonable price after the recent correction.  His other bets include Jubilant Foodworks and United Spirits. He says no to metals and ITC. Below is an edited transcript of the analysis on CNBC-TV18 Q: Will the Reserve Bank of India (RBI) be able to change the mood of the market in its policy announcement on Tuesday?
A: I think the RBI can change the mood. If this had not happened, it was expected that the RBI could enhance market sentiment with a cut in rates in the direction in which the economy is moving with a mildly dovish kind of guidance. The events in Cyprus have obviously knocked short-term sentiment. If the global scenario starts to get out of hand then the RBI might initiate more aggressive policy of monetary easing. Q: What is your outlook on banks?
A: If the rates are cut, then public sector banks will start looking good again. PSU banks may not return to previous highs and if the market gets a whiff of the fact that from hereon rates are going to get cut in one direction, though at a modest pace, then PSU-bank stocks should start underperforming.
Regarding private banks, the details regarding the investigation of allegations of money-laundering are awaited and I expect the findings will be insignificant. But even if the inquiry’s findings are significant, the reaction would be mild. Q: The underlying problem and much of the pressure started was due to an extremely poor earnings session. What are the other problems you expect in the coming quarter?
A: In the banks segment, private banks performed very well on the earnings and that will continue in the coming quarters. The technology segment should continue to perform well. There will be problems in the commodity segment. However, I don’t think the earnings season was very negative as the the number of upgrades outpace the number of downgrades in the earning season. Q: Of the two PSUs planned for divestment, which are you bullish on - SAIL or Coal India?
A: I am bullish on neither as the offer for divestment will be at a discount. But investors could go in if a good price is offered for Coal India. Q: What is your outlook on the consumer segment? A lot of stocks like Titan which were much fancied earlier have underperformed of late – is it a buying opportunity or do you see more corrections?
A: I see it as an opportunity to accumulate. Investors could buy over the next two-to-three months. Titan is a good stock to accumulate because it is a very strong franchise.
I don't think there will be a secular crack in gold prices from hereon. I estimate these risk-on, risk-off trades to continue. If investors are keen on high quality stocks available at reasonable valuations, then they should go and buy Titan.
_PAGEBREAK_ Q: Would you say the same of high quality auto companies where the two-wheeler and four-wheeler segments are going through a terribly negative phase or would you wait a bit longer?
A: I may wait a bit longer for two-wheelers. But Maruti, for example, though it faces problem due to poor sales across the auto industry, it is gaining market share. However, the Yen trade will benefit its earnings. It is a proven fact that in stocks like Maruti performance tracks market-share. So, this is what one would be bullish on. Regarding other stocks in the auto sector, I would look at better entry levels for Bajaj Auto. Q: Is there reason for the IT segment to move higher on the valuation band? What are the IT stocks that you would be comfortable buying?
A: I would buy the frontline stocks. If the US economic recovery goes through and tech spends start to rebound a bit over the year, the IT sector will start performing well. Though there could be corrections, IT is a sector that investors should be overweight on. Q: What do you think the trend might be in terms of policy impetus?
A: One, I think RBI should be cutting rates. Two, diesel prices have not been hiked because Parliament is in session. The government plans to hike diesel prices after the Parliament session.
Third, the focus will be on infrastructure. Most the government’s attempts to boost activity in infrastructure have been futile and it will some time before the benefits of the governments focus on infrastructure bear fruit. Q: What is your list of stocks to avoid?
A: I would still avoid the infrastructure segment followed by metals and commodities.
The high-price consumer segment might go through a sideways kind of correction so I would not venture to buy HUL and ITC. Q: How about cement?
A: I will foray into cement at better prices but I would not avoid the segment. Q: Aside from a stock like Titan, what else attracts your eye in fast moving consumer segment where stocks like Jubilant bounced back despite a fall post earnings?
A: Jubilant is a stock that one should look at accumulating in this downturn along with United Spirits which I would obviously go ahead and buy even at the current juncture because once the deal and the open offers starts, the upside will clearly be significant. Q: Would you buy anything from media now?
A: No. I will wait till the prices get better in stocks such as Zee Entertainment which I would accumulating at price-levels below Rs 200.