Investors should buy at 5200-5400: Sampriti Cap

Sandeep Shah, CEO, Sampriti Capital, says that though there are hopes of revival of the investment cycle there are no signs yet. He feels that there could be a good buying opportunity for the investors at 5200-5400.

Also Read: See mild bullish bias for today; go long: Sudarshan Sukhani Below is the edited transcript of his interview to CNBC-TV18. Q: Things have lowered down for the market and there was a worry of a big fiscal cliff. How do you feel that the tail end of the year may look?
A: The downsides would open up slowly and we have seen a fairly gradual grind. The US market have almost priced in going down the fiscal cliff. There was some relief rally yesterday as I don't think a possible recession is priced in. Europe is already in the throws of a recession. Japan and China are also slowing down very rapidly. Most participants are expecting a logjam in the Parliament and with no confidence motion it can be understood that the markets are relatively cautious at this stage. I maintain a downside target of 5200-5400 on the Nifty.
Though there are hopes of revival of the investment cycle there are no signs yet. L&T chairman has also said that there are no sign of companies reviving their capital expenditure. In the short term there could be significant downsides in the industrials depending on the news flow. The trade deficit is at an all-time high of USD 21 billion and retail inflation is above 9.8 percent. The IIP numbers are also not encouraging but I think numbers will turn positive in December. The market may grind downwards towards 5200-5400 and there could be buying opportunity for the investors. There are chances of some pullback as the market has corrected for continuous 6-7 days.  Q: Would you buy with the belief that the market was riding up to your eventual target of 6000. Do you see that happening in the early part of next year, as some people believe next year could be the start of some kind of synchronous bull market move for the market, much cleaner trend?
A: There is a possibility that we could hit a new high but it depends on many factors which includes that the US does not go down the fiscal cliff as it would suck up a lot of liquidity. The markets have been riding on fairly high liquidity for quite sometime. There was a flurry of announcements by the government in September and October but further there was a gradual quietening down in the announcement. If the government gets back into action and makes some positive announcements then possibility opens up. I agree to your view that the upsides would be capped at 6000. It is important to see some signs of growth bottoming out in China and that would be fairly important for a market revival.         Q: If the government is not able to pass a legislation given its minority status, do you expect an exaggerated reaction on the downside or do you think that the disappointment will not be major and will hold on to the levels of 5,200 to 5,400?
A: The base case assumption is that the no confidence motion fails. There is a risk that there maybe issues with retail FDI as the Samajwadi Party and the Bahujan Samaj Party have made opposition to FDI in retail very clear. My downside band of 5,200-5,400 captures the possible negative fallout of FDI as well. 5,200-5,400 should be a buying opportunity to invest in private banks, consumption pharmaceuticals, growth stocks, some beaten down sectors stocks like broadcasting companies and some selective property stocks.
In the beaten down sectors investor need to stay with the leaders, companies with reasonably good cash flows and proven management capabilities, but one need to be careful. We are still not in the stage even if the industrial bear market has ended I do not think we are in bull market in industrials yet. Q: Are we seeing any initial signs of a turn in the investment cycle and within this Winter Session of the Parliament itself are you expecting incentivizing of investments, in respect to land or mining?
A: The investment cycle has not yet turned but a build-up is needed in terms of sentiment change to do that. Not enough ground work is done in the mining, power, coal allocations and production areas. The government continuous to take steps but it will take at least one or two quarter before it happens and the market will obviously try and price that ahead at least a quarter ahead of that happening.
So we look to buy some of the beaten down sectors even though the investment cycle has not yet turned. It is also clear that the government is willing to take necessary steps for proposals which do not require legislative approvals, unfortunately land acquisition is one of the biggest issues which require legislative approval, and one can hope that it gets the required nod. But issues like National Investment Board, power linkages and environmental clearances do not require legislative approvals. I am disappointed to see limited action taking place in areas which do not require any legislative approval. I expect to see enough action in other areas in next quarter. Q: What is your view on United Spirits and the story behind that?
A: After the run up that we have seen in the stock, I am not keeping the stock on my radar. Q: In telecom there could be a rethink both in terms of fees that is being slapped on some of these companies and perhaps a slim chance that there is going to be a movement upwards in tariff rates rather than down?
A: Many of us have been waiting for that for sometime now. The number of players in the telecom industry has reduced. Entry barriers have now gone up significantly and there are serious barriers in doing telecom business in India. But some of those issues have reduced to the extent that there is clarity on refarming, spectrum price has been much lower, I think the case for a long-term investment story in telecom is again building up, but I think the real conviction would come when there will be pricing power.
We saw Bharti twice trying to raise prices unsuccessfully, because pricing is not set by the market leader in terms of market share, numbers of subscribers or even the incremental market share, pricing is set by the lowest cost producer. We have not seen pricing powering coming back into telecom sector in India from last one-one and half year. I think on serious corrections there is a case for looking at telecom stocks, but certainly not to chase them. Q: Yesterday, there was some heavy delivery based buying in many auto names and Maruti has hit 52 week highs on the back of the positive festive sales within that space which stock would you incrementally bet on?
A: In two wheeler segment we are bullish on Bajaj Auto and investors should buy the stock on dips. In the four wheeler segment I am bullish on Maruti and M&M. I think the worst is over for Maruti and there is a possibility that there could be a fairly high and strong earning rebound for Maruti next year. M&M has done better in gaining market share in the passenger cars segment with their range of SUVs. With good rabi season there is a possibility that sales of tractors will also pick pick up. Among the three Bajaj Auto is the safest bet. Q: Do you think that FMCG will outperform or valuations are too expensive and it is time for some of these laggards to catch up?
A: It depends on your investment timeframe. An investor with horizon of 3-4 years or longer should stay invested. The great Indian consumer bull market which began in 2003 will continue for another two-three years. Per capita income will shoot up and as the per capita income increases the amount of spend incrementally on consumption increases disproportionately. If the market rally then there could be some underperformance from the consumption stocks, especially the FMCG stocks given the outperformance and valuations. These are not just defensive stocks but growth stocks. Some are high growth companies which continue to grow even in a downturn. I think there is a possibility that there might be a bubble in consumer stocks. We are far away from a bubble yet.
Currently, we are in the middle of a correction and I think FMCG stocks will continue to outperform and there is a select case for select midcap FMCG stocks to outperform also even if the market rallies. Long term investors should stay invested and short term traders looking for gain in next three to six months should trim their holding.