Mkt to scale fresh high; buy metals, pvt banks: InvestWorks

Indian indices will continue to soar despite the ongoing volatility on the back of liquidity push and hence investors must build positions in good stocks and unwind them at higher levels; stocks like Reliance Industries and sectors like metals which has been ignored for long can be the focus, advised Gopi Suvanam, founder, InvestWorks.

Nifty has been on a rollercoaster ride since two months on account of liquidity. From 5748 in April end, Nifty surged to 6190 in mid May and dropped sharply to 5967 in the last week. There have been several speculations on quantitative easing by US Federal Reserve which has been the key driver of liquidity in the global markets. Suvanam believes that Fed will continue with quantitative easing (QE) until 2015.
Metal, oil and natural gas, energy sector which have not been the part of recent rallies, must be targeted by the investors Suvanam said. In the metal sector he prefers stocks like Hindalco and Tata Steel. Also read: India to see big flows from Japan, avoid PSU banks: Kotak
In case of rate sensitive sector, he advised to focus on private banks as they have more potential for growth going ahead. "Instead of focusing on the whole banking sector, may be look at select banks which are growing like Yes Bank or IndusInd Bank," he said. Below is the verbatim transcript of the interview Q: We saw a blip last week where the markets chose to move lower by about three odd percent. What's your view from hereon. Do you think this would be used as a buying opportunity and the uptrend would resume itself?
A: I definitely think there is some more upside to the market here. We can even test the previous highs and go beyond. But this volatility is going to continue for some more time when liquidity is moving in and out of certain sectors. So, there will be some buying opportunities like the one we have seen last week and maybe investors can start looking to build some position and maybe unwind them at much higher levels. Q: In terms of a sectoral trend for the markets or sectoral recommendation, what would it be at this point in terms of possibly entering or taking fresh positions?
A: There is a big sectoral rotation that is happening. Initially there was lot of investment into defensives like pharma, fast moving consumer goods (FMCG) etc. Then people started looking at rate sensitive stocks. Now I think is the time to look at some of the stocks that people have not talked in the last couple of years for example metals or oil and natural gas, energy etc. People have not looked at Reliance in lets say 2-3 years. So, that is one stock that you can look at buying at this moment because fundamentally there is strong news supporting that stock and also technically there could be some liquidity going into these sectors – away from the sectors that are already over invested.
Another particular sector as I had mentioned is metals which has sort of under performed over the last couple of months like for example Hindalco or Tata Steel have not done really well in the last couple of months. So, one can start looking at investing in those sectors. Q: If in case we do make new highs for the markets like you mentioned, what would be the sustainability of those levels according to you and what would lead to the sustainability more importantly? Would it just be a global liquidity push?
A: Currently, what's driving is a liquidity push, but there are definitely lots of risks that one has to keep in mind. For example, what will happen to the economy going forward because there are concerns both on the supply and demand side, what will happen to eventual Fed easing etc. My personal guess is that Fed would not stop quantitative easing (QE) until 2015, but there could be risks on that front. So, these are couple of things, economy and QE across the world, these are the two things that could add sustainability to the rally. Q: What would you do with the entire banking space because it seems like numbers were a bit sporadic from that sector. For example State Bank of India (SBI) sort of disappointed the street but then we have IndusInd Bank which is just firing away on all cylinders in terms of asset quality etc. How would you recommend a call on the banking space? Would it just be private banks which are safer despite higher valuations or may be a bit of a riskier call via public sector banks?
A: It is a clear cut distinction there private versus public. It is not too sporadic from that angle. Even if you look at the rate sensitivity I think private sector banks are much more rate sensitive than public sector banks. Public sector banks have various issues – legacy issues, non-performing assets (NPA) issues, growth issues etc, whereas private sector banks have reasonable amount of growth potential. So, given that I think there is a huge amount of scope in private sector banks in terms of growth once the rate cycle starts speeding up which means that there will be much more rate cuts going forward. So, that is an opportunity that investors should catch on to. Instead of focusing on the whole banking sector, may be look at select banks which are growing like Yes Bank or IndusInd Bank. Q: Would you have a call in terms of a lot of these fast-moving consumer goods (FMCG) majors that came out with numbers? For example, Britannia, which actually came out with a very healthy set of numbers, stock is at a 52-week high, P&G as well, which is at a 52-week high. Would you have a call on couple of these FMCG stocks?
A: I want to maybe focus on some of the smaller stocksBritannia and Dabur and maybe get out of the bigger stocks like Hindustan Unilever (HUL) and ITC, so that's a only call at the moment. I don't have a very confident level in terms of the whole FMCG sector, but I think there will be some reallocation from big companies into smaller companies in terms of investment. Q: Surprisingly we didn’t see much of volatility in the Indian markets despite the fact that the Nikkei was down around 3 percent odd today. Is there any sort of break in correlation that we can expect from the Japanese markets going forward? And the little blip that we saw last week was just interim in nature?
A: What we have seen last week is very temporary and today evening I think US markets are not functioning. So, we may not see the effect even tomorrow. May be day after tomorrow we can see some effect from FII flows. That could lead into some volatility otherwise I think in general market volatility is back but the trend is sort of upwards which is being supported by various quantitative easing measures. So, I don’t think this temporary flips in global markets would have any long standing effect on Indian markets. The only effect that could turn around Indian markets into bear market is economic scenario and political scenario. Q: This week is heavy on earnings. It is a last week on the earnings season and we have some major ones like Tata Motors, DLF, Sun Pharma, Mahindra and Mahindra (M&M) etc. which would be your top pick from that list?
A: Hindalco is one of the picks that I want to look at and Tata Motors maybe. Tata Motors, I would watch carefully and Hindalco maybe start investing even before the results come out. So, these are the two ones that I would be interested in looking at buying.