Pause till inflation, Greece & monsoons settle: Dipan Mehta

In an analysis of the market on CNBC-TV18, BSE and NSE member Dipan Mehta advises investors to adopt a wait and watch mode till the inflation data is released, the results of the Greek elections are announced and full impact of the monsoons is observed.

Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: The week ahead is choc-a-bloc with significant events such as the release of IIP and inflation data, the announcement of the RBI's policy and the Greek elections in the week after. How do you think the market is going to deal with all of this and which way do you see the wind blowing?
A: If you can predict how these events are going to play out then you can take a call on the market. But these events are very unpredictable and their effect on the market is significant.
No doubt the market has rallied over the past few trading sessions and if the market can hold these levels then you have to conclude that the market is entering an uncertain period on high which is always not a very good situation for the market to be in.
Ideally, the market should be entering these events on light volumes, light open interest and slightly negative bias. But that doesn't seem to be the case at this point of time. So, I guess investors and traders should adopt a wait-and -watch mode and let these events play out and end the uncertainty.
The monsoons are also going to be a major factor to watch out for. So, I recommend investors to set everything aside and watch all the action taking place outside the market. Q: Clearly the market is pricing for a cut if either 25 bps or as reports indicate, a 50 bps  rate-cut? Which camp do you belong to? Do you think that a 50 bps cut will come and how much has of this the market already factored it in?
A: I think the cut of 25 bps has been discounted and with a cut of maybe 50 bps, the market may post an upside of 3-4%, assuming all other events do not impact the market negatively.
In my assessment, a 0.5% interest rate-cut seems highly unlikely. They cut 0.5% last time and to cut another 0.5% would be very difficult unless there is a strengthening of the rupee and major European events are out of the way, which doesn’t seem likely at least by the time the RBI policy is out.
So I would like to work with nil to 0.25% reduction in the interest rate and then if a 0.5% comes, then there is no problem, the market will take it with both hands. Q: Would you venture into the real estate sector or would you stay away as advised?
A: Till interest rates don't start to correct at the borrower's level, for the person who actually goes and takes consumer housing loans, I think these companies are going to be challenged. A lot of companies in the real estate sector are reaching attractive levels.
Some of the good ones, like Sobha Developers, Mahindra Lifespace or Godrej with usual disclosures, have kept debt under control as well and are well placed to benefit from any upswing in the sector.
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But right now I think the preference should be for export-oriented sectors, real estate, infrastructure and banks.
But I would rather buy stocks of the export-oriented sector, real estate, infrastructure and banks once the market has clearly turned its trading above the 200 DMA.
If the market reaches a bottom and the entire technical picture has changes, then the defensives and export oriented may not do as well and some of the momentum would plays out better.
So, from a strategic point of view I would still stick with defensives, export-oriented sectors, keep a watch on real estate, infrastructure and banks and be ready to make the shift as and when certainty returns and I am quite sure the worst is over and there will not be anymore shock for the market from within or without. Q: L&T has crossed the Rs 1,300-mark and is moving higher. How are positioned on L&T?
A: I'm generally positive. I think lot of noise is being made by the government about trying to boost capital spending and take up the infrastructure projects.
I think a cell has been formed within the PMO's office to monitor progress of certain projects. The PM's focus and the GDP at 5.3% and the overall pressure on the ministries is pushing infrastructure stocks with L&T leading the pack and benefitting from the trend. Q: How would you want to play banks from a fundamental or trading perspective? Would you buy now or stay away?
A: I think I would wait for the RBI policy and the Greek elections to be out of the way and even if the market rally by 2-3%, the banks' rally of 4-5% will still make them attractive.
From an investment point of view, it is important to time the reward of risk and at present risk is higher side and is invested on banks. If the environment and the outlook does turn positive because of lower interest rates, then the reward of risk would be in favour of actually investing in banking shares.
I prefer private sector banks per se as the valuations are attractive and they have been able to manage well in this environment over the past 12 -18 months or so.
Their NPAs seems to be coming back under control. So it is a wait-and-watch strategy for banks at this point of time. Maybe once you are sure about inflation, the monsoons and overall economic trends, then banks are the best bet for the stock market.