Budget 2013: Refrain from timing mkt; cherry-pick sensibly: Purushottam

Professional investor Sangeeta Purushottam explains on CNBC-TV18 that retail investors should refrain from trying to choose the right time to enter the market and cherry-pick stocks, in the event of a market sell-off from protracted delay in the fiscal cliff negotiations, that are likely to do well when the market recovers.

Below is an edited transcript of the Sangeeta Purushottam's analysis on CNBC-TV18 Q: What is your sense of how the market will traverse over the next couple of days? Is there likely to be a lot of weakness or volatility because of the global context or will it largely remain firm or range-bound?
A: I think the markets will probably remain range-bound due to global uncertainty which is preventing the market from moving higher. The market, on the whole, seems to be pricing-in a scenario of the emergence of a reasonable agreement on the fiscal cliff.
If the uncertainty lasts much longer then it is anticipated to cause some volatility and to a larger extent that could prove to be a negative for the market. But for the time being the hope that some kind of a breakthrough would emerge is likely to continue. Q: What is your outlook on India? Is there still strength in the current rally or do you think the best of it is behind the market in December?
A: Positive inflow-levels and momentum on the announcement and implementation of reforms side will remain supportive of the market. But I do not think there is going to be a runaway market. So, the market is going to rise at a pace slower than in the past. Q: If because of the fiscal cliff, the market does see a sell-off, could investors use the opportunity to cherry-pick stocks? If so, what are the stocks that you would look at?
A: The opportunity to cherry-pick depends on the extent of the selloff. So, only if there is a correction of 5 percent, does it make sense to enter the market. In my opinion, even while investors go cherry-picking, it would make sense to stay with sectors which are likely to perform well when the market rebounds.
For example, certain high-performing stocks in the private-sector-bank segment and a stock like State Bank of India (SBI) which is a leader in the PSU-bank segment. Investors could also focus on rate sensitives such as auto stocks playing on the expectation of a possible cut in interest rates in January. Q: What about oil and gas? There has been some pickup in activity in oil-and-gas stocks supported by expectations of a policy announcement. Is this a space that could lead the next leg of the rally?
A: I am not sure whether there will be a substantial rally from that segment, but overall if the domestic and global macro-economic cues remain supportive then there could be a slightly increased broader participation because investors are looking for newer sectors to participate in and that could fuel a kind of a short-term rally in the sector. But whether that sustains in the longer term, remains to be seen. Q: About the focus on rate-sensitives, will you be most optimistic only on banks or will some other sector provide a leg to the rally next year?
A: In my opinion, the interest rate-cut in the first quarter will be the last leg of the rally in the banking sector. So investors need to be careful because the sector has had a good run and particularly, private-sector-bank stocks are not cheap any more. However, investors could still remain focused on rate-sensitive segments that are linked to consumption such as auto and real estate. Q: In terms of fiscal policy, how much do you expect next year and before the Budget Session begins in February?
A: I think the best that can be hoped for is some announcements regarding the hike in fuel prices and that could be an indicator of the government’s seriousness in cutting down fiscal deficit. Some of the other measures to rein-in the fisc such as the reduction in subsidies remain a longer-term solution.
What emerge as positive are initiatives such as the Direct Transfer Through Cash Scheme which would lead to a greater efficiency in the delivery mechanism. But again one cannot expect an instant impact on the fisc from such schemes. So what is required are steps to speeden fiscal consolidation rather than dramatic and quick-fix initiatives to rein-in the fiscal deficit. Q: There is still an extremely high level of investor apathy in this market. Do you think the start of 2013 is a good time for retail investors to enter the market or should investors wait for better levels?
A: I think retail investors should not time the market because even the best of traders can get it wrong. Investors should focus on investing systematically and adopt a longer-term perspective. Q: What is your opinion on the two large-size listings, CARE Ratings and Bharti Infratel?
A: I think both the listings were pretty much on expected lines. Both are good companies, with sound business models and managements. But as far as Bharti Infratel is concerned, there were concerns about pricing and its nature of being a very long-term investment. So though long-term investors may see returns, it has little to offer in the short-term.
CARE is a very good listing given the performance from its already listed peers in the same space and I am not surprised by the fact that it had a decent post-listing performance. So, both could be on investors’ radar as long-term investments at appropriate prices. Q: What is your opinion on telecom, especially Bharti Airtel?
A: I think telecom is bottoming out. It is a sector which over the next one-or-two years could be a potential outperformer. Though there is still some regulatory uncertainty left till the next round of auctions get completed, a lot of it is in the price and is known.
The fact that there is likely to be consolidation in the sector and the number of participants are reducing, the concerns on competition are coming down. I think this creates a scenario where there could possibly be upwards revisions of tariff over the course of the next year and that would be very positive for the larger participants. So telecom is an interesting sector and it does merit investment at these levels. Q: What do you do with sectors which are vulnerable to global growth such as metals or IT? Do they go on to the backburner now?
A: Yes, they would. I think metals are very closely linked to the growth in the gross domestic product (GDP) and although some of the metal counters have done well in the recent past, I think taking a longer term call on metals just now is still little iffy.  So I would not look at the sector from a long-term point of view.
Similarly as far as IT is concerned, there is likely to see be another year of fairly tepid growth in volumes for most of the larger participants. The valuations are fair and are not cheap. The sector may not get the support from the rupee as last year and I certainly hope don’t, from an overall macro perspective, because a weakening rupee would have a huge number of other negative connotations.
So this sector doesn't look like an outperformer and if we look back at 2012 also, the larger IT companies did not outperform the market. So that is likely to continue into 2013 as well. Q: Tata Motors has been the biggest performer in this year by gaining close to 75 percent. Would you accumulate if you owned the stock or do you think it is a good time to take profits?
A: I think, in terms of valuations, Tata Motors still doesn’t look very expensive. The performance has largely been driven by the Jaguar operations. There are concerns on the domestic front because the commercial vehicle (CV) cycle is not yet close to picking up. So as long as the Jaguar performance comes through this year, there would still be more scope for the stock to go up, because valuations remain supportive. Q What do you expect to see from IT next month? How disappointing do you think it is going to be or will it much more diverse as it has been- Infosys on one hand and TCS, HCL Technologies on the other?
A: I think that trend would continue. However, if we look at the stock performance then it is going to get a little less diverse because HCL posted a stellar run all across last year and the valuation gap that existed between HCL and its larger peers has narrowed considerably. TCS remains at the higher end of the valuation range.
So my sense is that we will see a lot more convergence on the stock performance even though the actual operating performance may remain pretty much like it was last year with variances across the three companies.