Investors should wait until markets ease a bit: Dipan Mehta

Dipan Mehta, Member BSE and NSE advises investors to wait and watch for now. The overseas problems have not got resolved so retail investors should not take the plunge just as yet, he said.

Expressing his dissapointment on PSU bank earnings, he said, one should avoid them and focus instead on the private sector banks and non-banking financial companies (NBFCs). Meanwhile, pharmaceutical sector seems in for a re-rating in the past couple of days. However, Mehta feels long-term fundamentals is very sound for this industry. "Pharma companies have been doing well over the past year, it is just some stocks which are playing out negative for the sector," he said. Further, he expects a good set of numbers from M&M earnings and the entire oil marketing group could be avoided. Below is the verbatim transcript of his interview to CNBC-TV18 Q: What would you advise investors to do at this point in time? Do you expect the cuts to deepen or do you see this as some sort of a buying opportunity in the market. A: At this point of time, I think investors are better off just in a wait and watch zone. The reason is that the overseas problems have not got resolved. Unless we don’t see some calmness returning to the global markets, I don’t think retail investors should take the plunge. The markets have run up significantly over the past month or so and a correction even further deeper than these levels cannot be completely ruled out. So, I think one should just wait for the entire world markets to get back its rhythm per se and tend to calm waters. Then maybe take the plunge. I would say that it is better to wait and watch. The earning season also is better to get over and done with it over the next week or so because then all the bad news at least will be out of the way as far as the domestic economy and domestic news flow is concerned. Q: On the point of earnings how did you think State Bank of India’s (SBI’s) numbers were for the quarter? A: They were very disappointing. Private sector bank is going from strength to strength, not only increasing the net interest income, but also having their non-performing assets (NPAs) well under control. However, public sector banks are just not able to grow their loan book or their deposit book. The rate at which the banking industry per se is growing and there are major problems on the NPA side as well. The earnings volatility is really impacting sentiment in those stocks. So, for retail investor it is pretty much clear that interest rates will go down and one needs to buy interest sensitives. However, one should avoid PSU banks and focus on the private sector banks and the non-banking financial companies (NBFCs). They are really able to ride this particular scenario where hopefully monetary policy will ease and interest rates will reduce. Q: Any thoughts on the pharmaceutical space? It seems like it is in for a re-rating in the past couple of days? A: Yes, I think, but somehow it is confluence on negative factors for lot of the pharmaceutical companies. Wockhardt had its problem with Food and Drug Administration (FDA), Ranbaxy is trying to sue its erstwhile owners-promoters, Glenmark also had some kind of a withdrawal of drugs and then there was Sun Pharma also had negative news. So, nothing exactly related, but just that specific negatives in specific stocks are playing out and pharmaceutical companies have been doing exceedingly well over the past year. So, investors are naturally slightly overweight over there. So, we are seeing this kind of an exaggerated fall. Long-term fundamentals remain very sound for the industry. Rupee depreciation tends to benefit them the maximum according to us. So, I would say that at corrections these stocks are interesting to increase exposure to. However, stocks like Wockhardt should just wait and watch because there is still lot of confusion as to how exactly this will impact the performance. And atleast for the next three-four quarters this particular news flow will play out negatively. So, apart from Wockhardt other companies could be good entry point, maybe three-four percent lower or so. Q: What would your prognosis be for the June series? Do you think that the uptrend that we saw couple of weeks ago has been arrested completely or is there a chance of this market seeing a bit of more downside but then resuming that medium term uptrend that we were working with? A: Few weeks ago we were all very confident that markets will scale to a new high and then we had these tremors in the global markets which completely changed that view. Now sentiment certainly is downbeat. It is difficult to call because trying to understand how global markets will move is very difficult to predict. What is important is that again we are moving in tandem with what is happening in global equities. There was a period of time when we had de-linked ourselves. I don’t think that’s has worked for long enough period. Now it is back to following what happens in Japanese markets and Dow as well as NASDAQ and the European markets. Global events I think will take centre stage given that the earning season is out of the way. June of course will be another major event. We will have another RBI policy so that will determine the sentiment and then there is the monsoon as well. So, I would say that these are three things that markets have to look out for. If all three or two out of three are positive, then you could be in for good times because per se, the liquidity continues to be pretty strong. Even domestically, I think that if market stabilises at these levels, my sense is that domestic liquidity also will start flowing in. That’s one thing that one should kind of track quite closely. I don’t think any major political events are anticipated in June. The monsoon session is much later. So, we do have that window of a month or so for markets to do slightly better than what they have done over the past few trading sessions. Q: What would you do with something like an India Cements? It has had an absolute howler of a week, down close to around 15-17 percent. Valuation wise, it does appear attractive. Where exactly would you chip into this counter? A: Clearly cement stocks have not performed over the past few months or so. There are no real triggers for a turn around in that sector per se considering that it is very closely linked to GDP growth rates and overall economic activity as well as construction activity. Also, the capex cycle is on the negative side. So, I would say that cement is still an avoid for time till we actually see a turnaround in the capex cycle and construction projects picking up speed. At the same time, I think that overhang is there about the competition commission orders. So that is also one more uncertainty to deal with. Little bit of over capacity is creeping into the cement sector. The kind of pricing power which they had maybe up to about a year ago or so - that does seem to be getting a bit eroded and I think the sector has been hit maximum in terms of increases in fuel prices and the changes as far as supply of bulk diesel is concerned. So, I would say it’s an avoid at this point of time and maybe when the scenario is better, one could look at the sector as a whole and not get swayed by just the valuations. Going forward, it is going to be pretty tough for the sector as a whole. Q: Next week, there are some big-ticket numbers as well in the last leg of the earnings season there is Oil and Natural Gas Corporation (ONGC), Tata Motors, DLF, Mahindra and Mahindra (M&M), which one would be your pick from that lot? A: We are looking at M&M results with considerable interest and that should be a good set of numbers. In another tough environment they have been able to increase their market share and so far their performance for the fiscal has been pretty decent. So, I would say that’s one company to look forward to and also, it is important what the management has to say for the upcoming year given that there are certain glitches in terms of a slight deceleration in the growth rates for utility vehicles. So, I would say that that’s one number to look forward to and then there is ofcourse Tata Motors. That apart, the oil marketing companies (OMCs) can be clearly avoided. Infact if there are any positive results, which result in stocks spiking up then maybe they could be good levels to exit out of. Still despite the way the crude oil prices have gone the government interference remains extremely at high level in these companies. I don’t think that they will be given the same level of independence, which was there maybe four-five years ago when the Bharatiya Janata Party (BJP) was at the centre. I would say that entire oil marketing group could be avoided and maybe you should exit at higher levels.