Big mkt recovery unlikely; sell HUL: JRG Sec

In an interview to CNBC-TV18 Anand Tandon, CEO, JRG Securities shared his reading and outlook on the market.

Below is the edited transcript of his interview with CNBC-TV18: Q: Essentially, it has been a tough June series and flows still continue to be negative. So, do you see this listlessness that we are seeing at this point continuing till expiry and current account deficit (CAD) numbers that come in on Friday? Going into the next series what really are your expectations? A: I would not call it listless. It has been fairly dramatic and that too on the downward side and in the near-term market has probably run away too far because of the currency. We will find that small rebound there, but the fundamentals continue to remain very weak and I would not bet on a big recovery even on a bounce. Also Read: HUL open offer begins at Rs 600/share Q: Talking about dramatic moves, let us talk about the broader markets breadth. Market breadth completely collapsing today 1:5 in favour of the declines and pain seems to be more intense in the midcap space for the last few days itself. So, does this go to reaffirm the faith in defensives? The point of a question is what essentially happens to stocks in the midcap space specifically say an Opto Circuits? A: Midcap is purely a question of whether there is enough liquidity in the system and whether the arbitrage between the valuations of large and smallcaps is large enough. The moment the liquidity dries up you will have a problem and right now I would imagine that with money moving out of the system and the interest rates going up both globally as well as here in India. There is a bit of tightness in the market and therefore midcaps simply can’t perform. There are too many issues right now with many of the companies which are heavily leveraged. Many of them happen to be the smaller companies and that also comes back to the point that government has allowed and companies have taken exposure in many cases in foreign currencies without quite understanding that it is not free money and that finally it averages out to a fairly high rate of interest, which is pretty much what you would get in India as well. They have not been able to handle the forex risk, has been another major problem. Q: Also considering that the tight liquidity situation we are seeing and of course the overall as you said dramatic downtrend and upmoves that we have been seeing for the last couple of weeks what essentially do you expect say from the Neyveli Lignite stake sale that is coming up and also would you recommend the Hindustan Unilever (HUL) open offer? A: I think we should sellout on HUL. The valuations are too high and unless you are a great bull on inflation continuing to remain very high it is very unlikely that they can generate the kind of returns that they have in the recent past in terms of performance and also the valuations are so expensive that it simply does not justify not selling. One is being extremely greedy since they think the thing is that somebody will come in and buy it at a higher price. I don't think it is very likely. Any other stake sale will actually get postpone because I don't know whether there is enough money in the system right now to take fresh issue of capital. You will find that like National Thermal Power Corporation (NTPC) pulled their bond issue a little while back you may find some of the equity sales also maybe postponed unless of course the government institutions come in and provide the support.