Weak IIP, mkt awaits fresh cue to move ahead: Rada Advisors

Putting aside all hopes of a revival, the September index of industrial production (IIP) slipped to a negative 0.4%, disappointing the market to a large extent. Nitin Raheja of Rada Advisors feels the market is now waiting for fresh cues and further impetus to take it forward. As far as picking stocks from the capital goods sector is concerned, Raheja cautions that one has to take a focused and bottom-up approach. Hence, a stock specific play would be best for this sector, he added.

Here is the edited transcript of the interview on CNBC-TV18. Q: A word on how the market will react to these IIP numbers or will they react at all? It has been a huge shocker this time around but, it doesn’t seem to be affecting the street too much.
A: After the kind of rise that we have seen, the markets are digesting the initial good news and waiting for further cues to see how to take it forward. Except for liquidity which continues to be virtuous, there is an absence of further impetus. Earnings are now behind us and they have been better than expected and therefore, the markets have been holding.
But, to make a substantial move from here going ahead would require further impetus either in the form of announcements from the government on the reform front or generous doses of liquidity. However, on a pure valuation basis, at a macro level the market seems to be almost fully valued and in the process of trying to discount future good news. I think it is really looking for cues if it has to go up and liquidity seems to be holding it up where it is. Q: A word from your end on how you would approach these capital goods counters, the likes of BHEL and L&T given that so many of these company’s future is predicated on any kind of improvement in either investment or in economic activity, how would you be poised on these stocks?
A: I would be very cautious on them and it will have to be very focused and bottom-up. For example, if you are going to take the power goods sector, BHEL is one which is facing intense competition not only from the fact that order flow has been tepid but even Chinese competition is high and margins are under pressure.
Hence, you need to be very specific. For example, within that segment we like something like a Power Grid which is in the transmission side and growing the balance sheet, which has a huge target for the next 5 year plan and has been consistently showing 25-30 percent earnings growth in such bad times. It will be a very stock specific approach to play this sector.