Nifty @6K: RBI policy next trigger; hold longs, say experts

The Nifty today crossed the 6000 mark for the first time in two years after the US Congress passed the 'fiscal cliff' deal. The market opened the day on a positive note at 5,982.60, and breached the 6,000 mark during late morning trade. The Nifty closed trade at 5993.27 today.

In an interview to CNBC-TV18, Dipan Mehta, member BSE and NSE and Sudarshan Sukhani of s2analytics.com share their optimism on the market. Sukhani opines there is more steam to the current rally. "There is no reason to cut long positions. There was no intraday trade today, the markets opened with a gap. We already had long positions. These long positions should be maintained," he says.
Also read: Nifty touches 6000; strong global cues: Udayan
Mehta says the rally and the 6000 breach will make investors look at their portfolios more seriously. "Maintaining the 6000 level is a very positive sign, because that would entice a lot of retail investors to enter the market. Whenever such major levels are being crossed, it generally creates a kind of a sensation in the minds of the retail investors and they tend to look at the market more seriously," he says. Below is the edited transcript Mehta and Sukhani's the interview to CNBC-TV18. Q: The Nifty is at 6000. How are you approaching it? Are you excited or cautioned? A: I have a certain degree of excitement. The market has been trading sideways for a long period of time and a breakout was expected. I am glad to note that the breakout is on the upside. Maintaining the 6000 level is a very positive sign, because that would entice a lot of retail investors to enter the market. Whenever such major levels are being crossed, it generally creates a kind of a sensation in the minds of the retail investors and they tend to look at the market more seriously. They tend to look at their portfolio more seriously. Q: Retail investors have been crouched in defense for so long now and there has been so much by way of apathy. If one wants to enter the market now, the levels seemed to have gone past. Where does one put his money ? A: One of the biggest events of 2013, atleast the first quarter has to be the RBI policy and the reduction in the interest rate. The budget and some more reforms are expected around that time. If you put these two events together, you have to be focused on the domestic oriented businesses, especially companies which benefit from a pick up in the domestic economy because of lower interest rates, better sentiment, or whatever moves the government makes.
Hence, banks will benefit easily because of lower interest rates as well as of pick-up in credit growth. Some of the construction companies will also see benefits in terms of order flows as well as execution of orders. Then, there are the domestic cyclicals and some of the commodity stocks. They have also gained traction as this bull market maintains or even scales to higher levels. This is because there is some kind of resistance as far as investors are concerned with regards to stocks that have already done extremely well and where the PE multiples are at lofty levels. So, you will see money flowing into the low PE stocks, the cyclicals, the interest rate sensitives, but investors should learn from previous bids  which we have seen in the market. They should not dilute the quality of their portfolio. It does not matter whether you want to participate at these levels or at higher levels, just be careful of the stocks that you are getting into in terms of corporate governance, dilution of equity, visibility of earnings. Q: The black sheep in this entire move has been IT and specifically Infosys which has lost about 16 percent in 2012. There are some talks now of the management yet again scaling down its revenue guidance etc. What are you expecting to see around this quarter? How would you approach these stocks? A: One should expect the worst from the IT companies, not just Infosys, for this quarter. It has been a challenging quarter for them. I do not think they will benefit as much from the rupee as well. So, by and large, the result should be flat, maybe slightly declining as well. That could be the case going forward as well. However, at some point of time, these stocks will become quite attractive and for that, one needs to see how the US economy is shaping up and post all the fiscal cliff issues how the sentiments in those markets are. It is important to see how the IT companies are able to capitalise on whatever growth that will follow-through.
This movement that you have seen in IT companies, is sideways to slightly declining. Under-performing could continue for some more time and I think investors should brace for bad results from the midcap IT companies this time around. The best time would be to look beyond this quarter’s results and see what the management is reporting or forecasting for the rest of 2013 and then perhaps make a call.
What goes in the favour of IT sector, ofcourse is that valuations are at attractive levels. Also, the overall theme towards outsourcing remains pretty much intact and good decent levels of corporate governance in the entire sector as a whole. That is one aspect and with this kind of trade deficit numbers coming through, it is a good defensive investment as well, because if the rupee is for a toss then these companies will see immediate buying coming in from institutional investors as well as retail investors.

Q: The flavour of the day has been autos. Would you put any fresh money into the auto space? Or given the fact, that the sales outlook looks a tad bit murky and the stocks run up so much, would the sector be risky now? 

A: One should look at auto quite closely. Watch some of the performing companies within the sector like Mahindra & Mahindra or Bajaj Auto, very closely, because just going by the monthly numbers and then trying to trade the stock, would not be a right strategy.
At the end of the day, these are interest rate sensitive sectors and if you see interest rates declining and mild pick-up even in the domestic economy, then freight rate should improve. So, that benefits commercial vehicle manufacturers and two-wheelers as well as four-wheelers. We have seen two to three flat years and some of the pent up demand does get created. If there is even a mild up tick in the economy and if the employment market look slightly up, even if it is a little bit, then one will see the demand for these companies coming through. The valuation for this sector as a whole is quite attractive, the balance sheet is extremely clean, there are very high returns on investment and return on equity (ROE) ratios. I would say this could be a good time to watch the sector closely and maybe look at increasing exposure. One should probably wait for the results to come through and that could be a better opportunity.