See near term support for Nifty at 5500: JRG Securities

Anand Tandon, CEO, JRG Securities sees 5500 as the near term support for the Nifty. “It had taken support there couple of times,” he said.

He told CNBC-TV18 that IT has been doing well and sectors like auto ancillaries and textile will pick up next. Also read: Market pullback real, Nifty can touch 5850: Dalton Capital Below is the verbatim transcript of his interview to CNBC-TV18 Q: What is the sense? You would think that 5500 is a base we have put in and you would be okay with taking long positions at that level? A: For the very near-term possibly yes. The market has taken support there couple of times so we could argue that it is a near term support. I don’t think if one takes a slightly longer view one would reach the same conclusion because whatever state the market earlier was, it is still pretty much there in the background. One will see the taper beginning to start fairly soon. I would like to see the market reaction after that, which has actually started just on the basis of the news that it is likely to start. Q: Sectorally how would you play the markets now? A: I think it is reasonably clear now that finally the sectors that were doing really well have started to ease of. People are now looking at sectors which are affording more value. We have seen IT begin to do well. The other export areas are also beginning to do little better. I would expect sectors like auto ancillaries and textile to pick up next. I think that will be a play which will continue for the next six months. It won’t be surprising to see the power sector especially the utilities to also start showing some traction including some of the input providers to those utilities. Q: With respect to your skepticism about the bottom – you said only in the near-term you would respect 5500 – how much more would you give in terms of lows, yes we have perhaps 5 percent gross domestic product (GDP) growth, that is not priced in at 5500? A: The index does not show as much as it should. Break up the sector in two parts. Fast moving consumer goods (FMCG) and pharma and to some extent banks though they have corrected quite substantially, now which are probably trading at fairly expensive valuations and that is true for FMCG. There are whole out of sectors which are trading perhaps many of them at 2008 or below that level. From an index point of view, something major has to move it up. I don’t see too many stocks in the index which are looking very cheap on the basis of their performance or expected performance. On the other hand, I do find there are large numbers of companies which are fairly well run and are cyclically down swing, because of the current growth environment we are in. If one has to be investing and taking a view that at some day the growth environment will become better then one would be interested in those companies because that’s where one is going to get the best bang for the buck. Therefore, logically the investment has to be outside the index. That can’t move the index up, so the market maybe more interested in where the index is unlikely to be. Q: If you have to invest outside the index in the midcap space which are the stock that you would look at because the midcap so far have underperformed barring the last few days? A: Yes they have which is what makes them very interesting. I would really look for the bombed out one. For example as I mentioned power utility is something where everybody has given up on. My argument is that as one comes closer to the elections it is almost inevitable that one has to sort it out. The government has made efforts to try and ensure that there is greater coal availability and so on. _PAGEBREAK_ Q: Was it your argument that therefore you will start looking at power utilities or is it your argument that you will start looking at any power space? A: It was my argument that one will be looking at power utilities because many of them are have been written down as if they are not going to function at all. There is some opportunity in that space. Also some of the other sectors like for example textiles is an export sector which is doing fairly well and there are two reasons. Not just the currency which obviously benefits also the fact that the structural shift that is happening between the propensity of buyers to buy from India versus China. They are already buying so much from China and besides that the Chinese cost are going up perhaps faster than the Indian cost. There is a structural shift aided by the fact that there is currency deprecation so textile is a large enough area for investors to be looking at and there are lot of companies which are available there as well. My argument is that there is now a market argument to be made for investing in stocks which are slightly out of the index, which are not necessarily very small companies or new companies, there are established businesses and very well run in many cases which has been beaten out of shape because of the fact that the market has got so concentrated that actually all the index movement is mirrored by four stocks. Q: Which one do you like – GMR or GVK, GMR Energy or Tata Power, Reliance Infra, Reliance Power? A: I think many of those. Reliance Infra and Tata Power looks decent to me. If one wants to be a safe player even an NTPC is alright. I would argue something like power financing company like PFC, Power Grid. All these are companies which are not necessarily very expensive at this stage. Power Finance corporation is trading at half the book value. How much lower can it go even if one assumes that they will have NPL higher than what they are talking about today. State electricity boards is finally sovereign guarantee – it does not matter, it has to be paid somewhere or the other. I don’t see a major risk of huge NPAs coming through. There may be a restructuring required, but I think you are more than compensated for that when one is buying something which is trading at half the book value. Q: Today Tata Steel has moved higher by about 6 percent post its earnings – that is also beaten down stock. Valuations are fairly attractive would you consider something like it? A: I would still stay away from commodities. If one is bullish on equities one has to be bearish on commodities because that is how the cycle has to work. I don’t see there is a great reason for looking at any global commodity right now neither is the global economic scenario going to take a few job turn nor is there any great demand supply gap in favour of commodities. The cycle for me right now seems to be over.