Nirmal Bang bets on Jan-Feb 2013; says India may be best EM

In an interview to CNBC-TV18, Mehraboon Irani of Nirmal Bang Securities expects India to be among the best emerging markets (EM) in 2013. He credits this to better corporate growth and the hope of a re-rating.

Irani adds that the US fiscal cliff delay could cause some suffering for India. However, Irani is bullish on the first two months of 2013. "We are going to see higher share values and higher indices atleast in the first two months of 2013," he adds.

Also read: Obama calls on Congress to salvage a fiscal cliff deal

Below is the edited transcript of Irani's interview to CNBC-TV18.

Q: It was a rough cut on Friday. Are you getting the sense that the year-end may not turn out the way people felt? Do you think there might be a bit of a correction by the time we get into January?

A: I had a little bit of apprehension earlier that going ahead in the very near future; we could have a cut or a very sharp cut. This depends on how the US fiscal cliff is avoided, if it is avoided, because the consensus is that it will be avoided. However, if there is any sort of delay, if we see a small red flag coming, it is going to be political suicide for both Republicans as well as the Democrats. However, politicians being what they are, irrespective of the skin colour are going to have a lot of arguments and debates. If there is a delay, there could be a cut across global markets and India could also suffer.
If there is a delay, if it goes into January, markets will then possibly end up cheering. So, whether we have another two to three percent cut honestly, I am not ruling it out. However, one thing seems certain, 2013 should hopefully start well for global equities and also for India, because for India specifically we will be looking at interest rate cuts. We will be looking at the Union Budget, which possibly, despite a lot of problems on the macro-front, will try to do a good balancing act.

Ultimately, India has the Finance Minister who is the most popular with the stock market over the last 20-24 years that this country has seen. I think a lot of optimism will start getting built in. So, whether one should buy now or wait for another four to five days for this fiscal cliff to be avoided is a very difficult question to answer. All said and done, we are going to see higher share values and higher indices atleast in the first two months of 2013.

Q: What kind of downside risk could you say is present to the market in terms of levels?
A: Relatively, I think India has attracted more money because of what has happened to some of the major Asian economies, China being the main culprit. If China recovers, can India end up getting relatively lesser funds in 2013, is a moot question. However, I feel that India could end up being relatively the best market among emerging markets in 2013, mainly because of better corporate growth. Hopefully re-rating is on the cards. Q: There have been some corrections in the non-banking financial companies (NBFCs) that had a spectacular rise. Anything that you would want to buy? Or is it still too expensive?
A: It is very expensive. Market always tends to overreact, as and when there is some newsflow. The market was expecting banking licenses or Banking Amendment Act to be ultimately passed in Parliament and the Rajya Sabha (RS) which has happened.

For anyone who wants buy it right now, from a longer term persperctive may find it to be ruling expensive. Over the prime candidates, I would bet on Mahindra Financial Services, Shriram Transport and L&T Holdings.
The market has largely discounted the fact that one should be buying into the stocks right now. One also needs to argue and also accept the fact, that one is not going to come in a hurry for the company which will ultimately get a banking license. The path ahead is going to be a little bit thorny and a little bit long.
There are a number of questions lying ahead; whether the licenses will come immediately, how long will it take them for setting up the branches, how good/bad will the branch network be as 25 percent of the branches have to be in unmapped areas; the priority sector lending of 25 percent, etc.
It is not all that profitable, especially if you look at the way some of the better, well-managed private sector banks, like Yes Bank took its own time to find its path. So, the path ahead is long.
However, these three companies are prime candidates and I would possibly wait for some decline to come in the overall market. If it comes over the next few days or if these stocks falter by around 3-5 percent from here, one could look into it. My best bet would be M&M Financial as a stock, followed by L&T and the third would be Shriram Transport Finance in these three listed entities.

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Q: How would you approach something like Jet Airways upto this 7.5 percent slide that we saw on Friday?
A: The overall fundamentals or the overall picture for this entire sector is not going to change despite what the government has done and allowing FDI coming in. At most, they could be trading bets now. I do not think I would allow any investor client of mine to possibly wager their money on either Kingfisher or Jet Airways as a stock right now considering the fact that the market has largely discounted the positive development if it happens. Q: What do you do with a stock like Bharti? It has had a such a wonderful performance. On Friday there were other concerns around it and it has lost quite a bit of ground too.
A: After having given up on the sector for the last four-five years, we started looking at the sector a little bit positively and it is a wastage of time. This refarming that the government is talking about has a lot of questions surrounding it; whether it can go through, whether the action can happen, whether it will be a challenge in the course or not.

I’ve heard people saying that telecom is a great long-term story. A lot of competition has been built up and pricing pressures are there. There is not too much of clarity, because there are problems between the regulators. So, all said and done, in a market which provides you decent opportunities elsewhere, one should not look at telecom.

Q: How would you approach some of the volatile names that got hit on Friday, like Punj Lloyd, IFCI. Do you see any shorting opportunities there?
A: I am worried about the capital goods side of the market business, whether we are talking about largecaps like BHEL or Larsen and Toubro or whether we are talking about midcaps like Punj Lloyd or Voltas. The way the rolls positions are happening, the cost is coming down. I am not bothered about the profit taking that we have seen on Friday. It is telling that going forward also, these stocks may continue to under-perform. So, I will be a seller on rise for these capital goods as a sector, as a whole with top pick in shorting like BHEL and L&T.

Q: You track Glenmark. There is some news flow about a development agreement with Forest Laboratories. How would you approach this stock after it has been hitting new highs everyday?
A: In the overall pharmaceutical pack, whatever has happened recently as far as the pharma policy goes, one needs to be very selective. My top bets have been Sun Pharmaceuticals and Lupin, but in the midcaps, I think the dark horses, and I have always called Glenmark a dark horse, will do well. Glenmark is a dark horse because of the current development. These kind of things, as far as Glenmark goes, has consistently been happening over the last few years .The would definitely be Glenmark and possibly a Biocon. So, I would look at these four stocks quite positively as far as the overall pharmaceutical pack goes.

Q: The big question on everyone's mind is whether the next leg of the rally, if it comes at all, will be earnings driven or liquidity driven. What is the sense that you are getting about the start of 2013?
A: Liquidity has allowed Indian markets to perform the way we have performed. It has been a relative sharp out-performance, especially in the second half of 2012 and it has been largely liquidity driven.
Now, as we look ahead into 2013, the problems globally could continue, though I would like to add that quite a few of these problems have receded for the time being. Whether that will keep the global equity markets active, the answer could be, possibly yes. However, as we go deeper or in the second half of 2013, the picture as of now is not very clear.

I think India will continue to relatively out-perform in 2013. If China bounces back, which I do not think is going to be easy, because I belong to the camp which believes that the stimulus in China is not going to come so easy. While the markets largely expect it is going to happen, but even if China ends up possibly moving on to a better trajectory slightly back on the growth path and India ends up suffering a little bit relatively as compared to 2012, then in terms of liquidity flows, I feel the earnings growth or the slight improvement in earnings of Indian corporates could possibly be the next trigger as far as the Indian equity market goes.