See mixed Q2 earnings; avoid cement, realty: Edelweiss

Edelweiss Securities expects the second quarter earnings season to be a mixed bag. Co-head IE and head of research Nischal Maheshwari believes that sectors which have benefitted from rupee's fall like information technology (IT) and pharmaceutical are likely to see an earnings upgrade. On the other hand, auto and industrials may see a downgrade in the earnings, he tells CNBC-TV18 in an interview.

Maheshwari advises investors to accumulate export-oriented stocks in their portfolio. He is bullish on Infosys, HCL Technologies and Tech Mahindra in the IT space. In FMCG (fast moving consumer goods), he is positive on Emami and Dabur. He also suggests staying away from cement, realty and energy stocks. Also read: Slowing economy may force Chidambaram to wield budget knife Below is the edited transcript of his interview to CNBC-TV18. Q: We have actually got earnings upgrade; just read an earnings upgrade on IT services from Nomura, they have raised their EPS forecast for a whole host of tier I stocks by 3 percent to 13 percent. Price targets also increased. Is earnings downgrade over or will there be more downgrades? If yes, in which sectors? A: After three-four seasons, we are seeing some upgrades and some downgrades. The upgrades are largely led by the rupee deprecation and companies which are exporting. So, upgrades are happening in IT, pharma. Some downgrades will continue to happen. It will be in auto and industrials. They will miss their numbers again. So, it is going to be a mixed bag, but it is welcomed that some of these sectors are getting upgraded. Q: The September auto numbers were not very bad compared to expectations. Bajaj Auto stock has risen; there has been delivery based buying. Which stocks do you think in the auto space could disappoint? A: It would be largely the commercial vehicle segment, which will disappoint. Maruti Suzuki on the car sector will also disappoint the numbers. This is based on an assumption that we are going to see further increase in the repo rate which is going to at least another one-two hikes will be there of 25 bps each. Numbers are going to start coming off on a year-on-year basis. This will be better than the current quarter of September because of the festival season. However, still on a year-on-year basis it will be lower numbers. Q: How is your trading desk approaching this market? One month ago, we were bemoaning that this market even at 14 times is over valued. At 5300-5400, there were people even calling for even lower lows for the market. We are sitting pretty comfortably above the 200 day moving average (DMA) now. Do you think given the sheer change in the mood this rally has legs at this juncture? Would you recommend sells into this rally? A: Yes, churning of portfolio is definitely recommended. A slightly more optimistic approach should be used given that we are seeing some starting anecdotal evidence of economy reviving. So, one can sell on the FMCG stocks which are very well priced and get into some industrials like Larsen and Toubro (L&T) which are showing good value at these prices.