Wise to stay out of mkt now; shun IT, telecom: NBIE

Indian currency’s sharp fall to life time lows is worrying the government as it would worsen the current account deficit (CAD) situation, but Pashupati Advani of NBIE feels India is looking attractive because of the depreciating rupee.

However, given the way market has fallen over the last few days, it is wise to stay out and start buying only when the Nifty starts rising, he recommended. "Though some people are looking at nibbling at the market, but there is no real serious bottom fishing now as seen last time when the Nifty came down to 5700," he told CNBC-TV18 in an interview.  He expects the market to perform better in July as inflows from HUL open offer would bring almost USD 5 billion to India. He says, one can look at buying high beta stocks when the market is on its way up. He is positive on cement stocks and likes Crompton Greaves from the capital goods space. On the flip side, he suggests staying away from IT stocks now as they are likely to feel the heat of US Immigration Bill. One should also avoid telecom stocks now.
Below is the edited transcript of Advani's interview to CNBC-TV18. Q: Do you think the 5500 Nifty level will hold out or do you expect the market to go lower? A: I have always been a reactive investor and I think in these times, one should wait for it to stop before jumping in. One should buy into the market once it turns on the way up, than to buy it on the way down and watch it go lower. We have seen a bit of the correction last week and I am trying to avoid it. So, I would be sitting on the sidelines right now. Q: Is it your sense though given the current developments that the market could see more pressure before that buying opportunity comes through? A: We are under the same pressure as all other emerging markets (EM). I do not think we have performed better or worse than them. We are just sort of probably slightly better, but the only problem is, we have had a currency that has gone from 55.5 against the dollar to almost 60. That is making our market look attractive which is why we have probably held these levels. I think there is this clout of China. There is a lot of money invested in China that is going to come out. The question is, does it sit on the sidelines, does it comes to us or does it go back to the US and that I am still unclear about, because there is a lot of turmoil in the investment world. Q: We also have a large broader market universe that has completely collapsed no matter what the index has done. What do you hear of what is happening there? Is it some of this institutional money pulling out or the domestic guys pressing on the sell pedal now? A: I think it is the combination of some people pulling out money. I do not think the domestic guys have pulled out as much as people think. There is light at the end of the tunnel in the sense that Hindustan Unilever's (HUL) money is going to come hopefully in July. I think that is going to be a positive flip for the market as it is over USD 5 billion. In my opinion, Vodafone will get settled also probably in the month of July, so July maybe an interesting month. We have seen a large inflow over a billion dollars in the last three-four days. So, it has been tough to absorb it. Q: Do you think there is more to go by way of outflows? A: Certainly, it looks like it is not stopping. A lot of stop losses are getting triggered and a lot of stocks are diving down. I think that bottom fishing has not yet happened in a big way. There are some people who are looking at nibbling at the market, but there is no real serious bottom fishing that we saw the last time when it came down to 5700. We had last dip about three weeks ago; at that point there was some bottom fishing. I have not seen it yet now. Q: Do you see the holy cows of the market coming under pressure, the ITCs and HDFCs of the world in this selling pressure? A: It is always difficult. The high PE stocks should be vulnerable. So far, we have had them on a pedestal. Hence, I think that that has made them not crack. Of course if everything cracks, then they will show something. ITC is off a little bit, but not too much. It is wishful thinking and hopefully the holy cows will not get cracked.

Q: How much more pressure for sectors like the gems and jewellery and some of these gold finance companies you think? A: Those sectors have actually been affected by rules that the Reserve Bank of India (RBI) has put into place very suddenly. They have put serious constrictions on the amount of money that these people can borrow. _PAGEBREAK_ So, its like telling somebody that though he/she owns a shop, all of a sudden the stock in your shop that you used to be able to finance, will not be able to be financed anymore. So, obviously that has put pressure on them. When one goes from bank finance to non-traditional finance, one is obviously going to have to pay more and the numbers look crazy. The RBI is very clear that they do not want gold imports to come. They are trying to control the Current Account Deficit (CAD). That is what is causing the problem. Until there is some kind of relaxation, these stocks are going to get hurt. Q: What sectors would you be hiding in now till this volatility plays out? A: I would be actually sitting in cash for the moment. If there is any kind of moment up, then one should jump into high-beta stocks, because those are the ones that will react much faster. I am not as bullish as people think on IT. IT should benefit from Rs 60/USD. I think the IT sector has also got some issues with the Immigration Bill coming in the US and it is going to be very difficult for them to react. They probably have another two-three months to play out, but it is going to be difficult for them to sustain the kind of levels and the kind of margins if that Immigration Bill comes in the shape that it does. Q: Telecom has not been doing badly. Would you buy anything there? A: Telecom is a forgotten sector right now. It is like life as usual. Though there is a slight growth in data earnings, there has been some mess in the sense that Bharti Airtel is going to be fined Rs 650 crore apparently for this cross-roaming of 3G. These are all things that are out there, so there is some uncertainty. It looks like they are cleaning up their act, but I do not know with the new players coming in what is going to happen in the telecom market. It is a very, very crowded place. Q: On the subject of high-beta would you look at anything in the capital goods or infrastructure space? Stocks like Crompton etc. are trying to shore up sentiment by doing a buyback for themselves. A: According to me, in infrastructure one should be in cement stocks at some point. Whoever does the project at the end of it all, the cement stocks are going to move. That is the space to be. Crompton has announced a buyback, so that is good. There are others where promoters think their companies have become very cheap and they are buying it. With the unfortunate disaster in Uttarakhand there will be some construction, some new projects will come up and all these things will help. But there is a lag. It is not that it is going to go away. However, these are real companies that are not going to disappear. Q: What do you do with the PSU banking cluster now? It is the space that has probably fallen the most in terms of prices in the last week or so. A: This is the time to shift through them and see what kind of bargains can be achieved. They were down fundamentally, not a lot of change. It is just that there was some kind of a structural problem. Apparently, there were some margin calls that hit them all. I think that is an interesting space to look at. One has to nibble, particularly in the smaller ones which were off 15-20 percent last week at some point.