Rupee could touch 65; no impact on market: InvestWorks

The US dollar should appreciate to levels of 62 or even 65 in the next couple of months, but that should not have a very significant impact on the Indian equity market, says Gopi Suvanam, founder, InvestWorks.

Talking to CNBC-TV18, he says he expects equity markets should decorrelate from the way rupee is moving over the next couple of months. Investors can start building positions in defensive and dollar-related stocks like technology or pharma. As bond market has sold off significantly over the last couple of weeks, investing in bonds would also make sense for somebody who is looking to gain low-risk long-term returns, he says. Below is an edited transcript of his interview with CNBC-TV18 Q: It has been so volatile for the market between that 5,600-6,100 range for the last many months. Do you think this volatility will continue where we react to global newsflow and then bounce back from our yearly lows? Is that the trend that you expect? A: So, I think yes, this volatility should continue for some more time. Even a small bit of news from United States (US) is like moving the markets up to 2-3 percent on a day. So, this would continue for some more time. But the good thing is that the market is still in a range. We have not broken the earlier year’s lows or we have not gone beyond earlier year’s highs. So, I think it will still be in a range. There will be huge swings within the range itself. Q: What is your call on the way the currency has again depreciated and in the second half do you see a big capitulation in the currency and maybe collateral damage on the market as well? A: I think there will be some more way to go for dollar. I think the dollar should appreciate about maybe to levels of 62 or even 65 in the next couple of months, but that should not have a very significant impact on the Indian equity markets. The dollar is being driven by various factors and the rupee itself has its own concerns. But I think the equity market should sort of decorrelate from the way rupee is moving over the next couple of months. So even though I am very bearish on rupee, I am not so much bearish on equities as such. Q: Is it a good time to be buying into stocks or do you think it is better to be high on cash given the volatility that we are seeing? A: I think this sell off has sort of provided some opportunities at least to my mind. Investors can start looking at building some position especially in defensive and dollar-related stocks like technology or pharma and maybe get out of some high price-earnings (PE) stocks like fast moving consumer goods (FMCG), real estate, or the banking sector. So, I think this is a good opportunity to build some of those investment portfolios. Even the bond market has sold off significantly over the last couple of weeks. So, investing in bonds would also make sense for somebody who is looking to gain low-risk long-term returns. Q: After looking at auto sales, how would you approach some of these auto companies now? This morning CLSA has downgraded Bajaj Auto from an underperform to a sell, stating that across the board, they are expecting to see weaker sales and weaker earnings etc. But how would you approach some of these names? A: I think there will be a huge slowdown in terms of consumption, and the auto sector would be the first one to get hit. We have already seen some affect over the last year, I think that will continue. I am not too bullish on that sector except maybe one or two stocks like Maruti, which has its own factors that are sort of supporting that sector. But especially heavy motor, autos and highly-leveraged companies I am not really bullish on. So, for example, I am not very bullish on Bajaj or even Mahindra and Mahindra (M&M).  Q: What is your call on the IT stocks? As we head into earnings season there is some chatter that Infosys may cut its guidance, but that apart how would you play that sector? A: Infosys looks good from valuation, but as you have mentioned Infosys always comes up with surprises when it comes to results. Other than that, I am bullish on HCL Tech. I think a level of Rs 820 or Rs 830 is good valuation for that. So, investors can start looking at building positions in HCL Tech and Tata Consultancy Services (TCS), but that has less of currency impact than HCL Tech, so that is the reason I am more bullish on HCL Tech. Infosys, I think it is better to wait and watch until the results and maybe if results are not too negative then one can start looking at Infosys also as an investment. Q: Has the oil and gas stocks priced in the gas price hike or do you think there is more to go on upside for names like Reliance and Oil and Natural Gas Corporation (ONGC)? A: When it comes to Reliance, I think there is some more way to go, maybe a level of Rs 880 or something, but I don’t think there would be any significant impact beyond that because further hikes may not be possible because of political reasons, coming into election year. So, I think a level of Rs 880 or something would be good. But beyond that I don’t think we can see significant rallies in Reliance. Q: This market has really been bipolar for more than a year now. You have seen consumption and pharma do well, rest pretty much everything has been underperforming. For how long do you think that trend will last, as a portfolio would you still be more geared towards defensives? A: I think the story of consumption is going to come to a halt sooner than many people think. So, I am not very bullish on FMCG sector, but I am still bullish on the pharma sector. So I think we can look at Cipla and Lupin, which are already at reasonably higher levels, but I think there is some more steam to go in those stocks. But I would get out of stocks like Hindustan Unilever (HUL), which are trading at a significant PE values and which are primarily driven by consumption story, which can come to a halt given the high inflation that we are seeing. So once this event with HUL goes through, I think investors should looking at getting out of that stock and maybe other FMCG stocks as well, but pharma I think we can still hold onto it. Q: From the banking space what is the expectation now? Today, there was some talk of higher provisioning that many of these banks would have to make,  that is what the Reserve Bank of India (RBI) has indicated. How do you map the trajectory now? And are there any stocks that you would be picking up? A: Both higher provisioning and cut in base rates would be negative for the banking sector unless there is a significant repo cut and cut in cash reserve ratio (CRR) rate, which may not happen anytime soon. So, I am not particularly bullish on this sector. So, I would keep my hands away until we see some indication from the central bank that there will be some easing going forward. So, as of now I don’t want to touch any of these stocks.