Positive on market; bets on BoB: Ambit Capital

The BSE Sensex ended the day today at 19751.19; 30 point lower. Sudarshan Sukhani, s2analytics.com, says that traders who have taken intraday shorts should book profits as the shorts were suggested on a rally; we got the rally and saw the decline also. We are seeing back to back loss in this Nifty. And it will not be justified to continue with the short positions tomorrow. It is much better. Today's decline is visible but it does not give confidence to build short positions.

Pramod Gubbi, vice-president – sales, Ambit Capital, says that we remain constructive on the market for two reasons, broadly domestic and global cues. Bank of Baroda is a high quality name as far as asset quality is concerned, we are constructive on the market we are still worried about the status of the private power and infrastructure space which is a huge source of asset quality problems.   
Also read: Equity funds fail to capitalise on Jan rally; outlook muted Below is the edited transcript of his interview to CNBC-TV18. Q: It has been extremely difficult to call the markets, it is not falling too much but it is appearing extremely tired at higher levels. How are you approaching the markets now and which direction do you think it is likely to take?
A: We remain constructive on the market for two reasons, broadly domestic and global cues. Domestic cues have been quite positive for best part of last year. We expect the government to positively push reforms that is likely to continue at least for another three months.
This month, all eyes will be on the Budget and we expect it to be quite consolidatory in nature, aiming for 4.8 percent fiscal deficit for next year and the market should take that positively. Secondly, the global cues are much powerful including the central bank action which we saw across the world, across the US, the UK and Japan now joining the party. We are seeing flows shifting from debt funds to equity funds.  
At this stage the action is largely restricted to develop market equities, a lot more is still to happen on the risk curve where these flows are likely to move towards emerging market equities over time. It will be the overriding factor for the rest of the year. On back of that we remain constructive on the market recommending clients to move towards high quality cyclicals and that is where we stand. Q: What is your view on the PSU banking space? PNB surprised on the upside while we saw huge disappointment from BoB. Within that space itself would you buy any stock after the earnings season and looking at the numbers?
A: Bank of Baroda is a high quality name as far as asset quality is concerned, while we are constructive on the market we are still worried about the status of the private power and infrastructure space which is a huge source of asset quality problems. The entire financial system in particular the public sector banks space, we are comfortable about Bank of Baroda despite today’s results.
In fact, Bank of Baroda had been considered as a relatively better bank on that front and that had crept into the expectations of the market and a slight miss on that front gave us the sharp reaction. More than the increase in asset quality or provisions that we saw from Bank of Baroda today we are worried about reduction in the right facts and recoveries.
Of the lot, we are bullish on Bank of Baroda or State Bank of India (SBI) given the strength of its liability franchise and also to the extent of asset quality clean up that has already taken place in SBI. Other than these two we remain skeptical on the rest of the space. Q: We have significant out performance in the entire real estate space. DLF is up today, Indiabulls Real Estate and Prestige across the board are seeing out performance by couple of these real estate names thing that we have not seen in couple of these other high beta names. How do you approach the entire real estate space, DLF in particular?
A: We have been constructive on the real estate space but very selective on the names in general. We liked Sobha Developers and Prestige in particular and DLF to some extent because the possibly we are seeing rate cut cycle beginning. What we saw last week and perhaps extending over the next 12-18 months is clearly a positive. There are other structural issues like affordability and land clearances which will remain for quite sometime.
So, to that extent we are looking for stocks where there are underlying competitive advantages in the form of brand and an existing land bank which the developer can leverage upon and garner a larger share of the demand that will come as a result of the rate cuts. So, Sobha, Prestige and DLF to a large extent clear those criteria and these would be the three names we would like whereas a lot of others have various other issues and we wouldn't recommend any of the other names. Q: What would you do with BHEL now? Is there any contrarian buy that you would advice there or is there a lot more to come in terms of downside both for the stock as well as for the earnings performance?
A: Not really. While the downside might be limited we don't see any reasons to buy the stock because fundamental reasons which drove our long standing sell recommendation have been the structural changes in the industry. The boiler turbine generator (BTG) space in general, where BHEL had been a pioneer and a dominating force it has not extremely changed with capacities and the supply being extremely higher than what demand can justify as a country.
To that extent unless and until we see some of the new entrants folding up or leaving the country and let that demand supply equation adjust, we wouldn’t consider buying BHEL. With this demand-supply equation we think even if they do get a larger share of the order it will come at a pricing which will keep margins under pressure and according to our view there is no earning growth to look forward to for BHEL for the next three years. So, to that extent even if there is a de-rating about 10 times earnings it is fairly justified for BHEL. Q: What is driving Rs 1000-crore cash sell figure by the domestic institutional investors (DIIs) day after day in our markets?
A: Unfortunately, we don't have any particular insides on it other than considering it is that time where there could be some profit taking by the retail investors and funds seeing some redemption or being prepared for some interesting capital issuances and divestments that one see coming along in the next few months.