See no major upside for Nifty, Sensex now: Angel Broking

In an interview to CNBC-TV18 Rajen Shah, chief investment officer CIO, Angel Broking shared reading and outlook on the Indian equity market. He expects both the Sensex and the Nifty to move in small range, but suggests focusing on broader market. "Sensex would be in this range of 19,000-20,000," he added.

Shah doesn't see major upside in both the indices in the next one month. "A lot of issues are coming, so that could suck little liquidity out of the secondary market. Also, the government is going to aggressively divest and raise about Rs 20,000 crore, so that could see LIC pumping in lot of money into those companies," he explained. Below is the edited transcript of Shah's interview with CNBC-TV18. Q: What's your call on the market from this level of 5900 onwards?
A: We should move in a small range. Last time, I had mentioned that we could see 5 percent plus or minus move depending upon what steps the government takes and whether FDI in retail goes through in the parliament. So, the markets have done reasonably fine.
But more than the Sensex or the Nifty, the broader market is showing a lot of action and some stocks have done exceptionally well. We believe that trend would continue and market would be in this range of 19000-20000. I don't see any major upside in the Nifty or the Sensex at least in the next one month.
The reason is that a lot of issues are coming, so that could suck little liquidity out of the secondary market. Also, the government is going to aggressively divest and raise about Rs 20,000 crore, so that could see LIC pumping in lot of money into those companies. So, the Sensex or the Nifty should be in a small range, but the action is going to be in the broader market.

Q: You track sugar stocks, what do you think of the higher State Advised Price (SAP) that has been prescribed for the Uttar Pradesh sugar companies? How will they react to it?
A: It will certainly be a drag on the profitability. So they are going to react negatively and may open 3-4 percent down. Our exposure to sugar companies is mostly into south based companies and we have exposure in EID Parry (India) and Bannari Amman Sugar but not in any of the UP based sugar mills.

Q: You also track chemical/fertilizer companies. United Phosphorous has been buying back its own stocks quite aggressively; the stock has performed quite well. Do you see more upside there?
A: This is just a beginning, I see a significant upside. In both our funds we are holding more than 7 percent in United Phosphorous and therefore its weightage is more than 7 percent. Looking at United Phosphorous financially, it should report around Rs 13 EPS for the current year going to Rs 14.5 for next year. So it is trading at less than nine times the earnings. Last year the management bought Rs 50 lakh shares at Rs 130 and yet the stock continued to tumble. So, this year they announced a buy back and have already pumped in around Rs 200 crore to buy back their own stock.
The average acquisition price of Rs 116-118 has bought Rs 1.7 crore shares. A few years back we recommended Godrej Industries Ltd when Adi Godrej was aggressively buying its own shares. They bought Rs 21 lakh shares at Rs 140 and today the stock is beyond Rs 300. Similarly, United Phosphorous is likely to cross Rs 250 in the next 24 months. Q: Would you buy a Punj Lloyd now?
A: Yes, would certainly buy. Infrastructure could be interesting because now the government has started working and that should see some action coming in the infrastructure space. So though we don’t own Punj Lloyd, I would certainly like to add it in my funds.
We do own Reliance Infrastructure which looks interesting at Rs 500-510 levels. This is because the fundamental EPS is likely to be at Rs 60 for the current year trading at 8.5 times the earnings. The book value is about Rs 950 crore, stock is at Rs 510 and a number of projects are likely to commence operations. 
Next year we may see earnings in excess of Rs 70 and plus, last year the management bought back Rs 44 lakh shares at an average of Rs 530. So, we have started buying Reliance Infrastructure in small lots and even though we don’t own it in big quantities we are planning to procure it as and when we book profits in some counters and have some cash. Q: Bharti Infratel opens tomorrow, have you taken a look at the issue?
A: We have avoided it. The three issues Bharti Infratel, Gitanjali Gems and CARE which are opening tomorrow, Bharti has the least possibility to make some money for retailers. Certainly, that is not enough to motivate me to deploy my money into this company though it is coming from a very good promoter. Looking at the valuations of CRISIL 30 times the earning, CARE (Credit Analysis and Research) looks to be fairly priced but I would not put my money because there too we don’t see any major appreciation.
 
As far as PC Jeweller is concerned, I would avoid it. I am amazed at the kind of valuation Tribhovandas Bhimji Zaveri (TBZ) is quoting, more than 25 times the current year earnings. Even Gitanjali Gems is quoting expensive. So, I would certainly avoid all the three issues.