Time to cherry pick infra, IT, pharma stocks: CIMB

Devesh Kumar, India Head, CIMB believes that the current sell-off by foreign institutional investors (FIIs) may not continue in the near-term. "FIIs looking to bet on India from a long-term perspective are sitting on the sidelines, leaving the Indian market under-owned; so given the way currency has moved, we do not expect big sell-off," he told CNBC-TV18 in an interview.

He sees the Nifty trading in the broad range of 5,600 - 6,300 till the market gains some confidence on either rupee’s movement or macroeconomic.  According to him, the worst for powers sector is over. The recent measures announced by the government to deal with coal and power issues will play out over the next 12-24 months, he added. He recommends selective buying in companies having strong balance sheets in infrastructure and related sectors. "For infra companies the operating environment is likely to improve over the next two quarters. The ones which are weak and have already suffered damages to their balance sheets may not be able to get back on their feet. So, selective picking up of stocks in those areas will give very good returns," he elaborated. Given the US dollar's strength, betting on strong pharmaceuticals and IT companies still makes sense, he added. Below is the edited transcript of Devesh Kumar’s interview with CNBC-TV18 Q: What have you made of these recent foreign institutional investors (FIIs) outflow and whether your sense is that they may continue at this space in the near-term? A: In the last couple of months we have seen that long-term FIIs have been on the sidelines and that has been their response to currency and short-term factors on the surface.  We feel that India is under-owned at this point of time and we do not expect big sell-off when the currency has come down to these levels. We feel is that this rangebound trend where nobody has conviction on either the currency or macroeconomic. It will continue for some more time till number starts proving otherwise. Q: The last few weeks haven’t been rangebound though, the market has been seeing quite a bit of pressure particularly on the frontliners, what kind of levels do you think could break in the current correction? A: I feel that there is no one at this point of time to buy in a big ways, my guess or anyone’s guess will be as good as someone else’. I do not have a view on where is the bottom, but I feel it will be rangebound – if one looks at last six months range then it will be 5,600 to 6,300. It is a broad range. There is no reason to get over bullish or over bearish at this point of time. Also, the currency part has already played out. Having said that, as far as the policy is concerned, in last six-nine months whatever has happened on the coal and power side, all that is very positive. For the first time I am seeing that in an election year, populist pressures are being avoided so far. So, all this will have fortune impact over a longer period and therefore post elections or closer to elections, these measures if they show some impact, there will be selective buying. Otherwise, in India the indifferent stance will continue for some more time. Q: Any thoughts on power stocks? They have been underperforming also because of their debt issues over the last few weeks? A: In short-term whatever announcement has come may not have much impact, but the important thing to note is whatever these policy announcements are made, they create the ground for new adjustments, which takes place over a longer period. In power sector, the overall theme will play out over the next 12-24 months because there are so many agencies involved. The worst for the power sector is coming to an end. First, improvement will be on the fuel supply side, then imports and with the domestic production going up the coal issue will be addressed. But logistic side needs further improvement. We feel that whatever has happened is positive for the sector. Q: What are your sectoral preferences given the kind of environment that we are in today? The market seems to be leaning towards the dollar earning companies like IT and pharmaceuticals, is that a sensible strategy at this point? A: Certainly, we feel that one is dollar play and second is inward looking plays such as consumer domestic consumption has come into play again. We feel that time has come where selectively one should look at stocks where balance sheet is still in a shape. It can be in infrastructure and related sectors because over next two quarters we expect the operating environment to improve. The ones which are weak and have already suffered damages to their balance sheets may not be able to get back on their feet. So, selective picking up of stocks in those areas will give very good returns.