Manappuram surge on; invest in growth, not scams: Experts

Technical analyst Sudarshan Sukhani of s2analytics.com explains to CNBC-TV18 that Manappuram General Finance has been performing well on the charts. "I have estimated previously that if the bear charge on Manappuram ends, the stock would go higher than imagined. This is a stock investors should plan to buy whenever there is a consolidation or dip,” Sukhani adds.

Meanwhile, BSE and NSE member Dipan Mehta reveals that investors should avoid knee-jerk responses whenever a company with sound performance and fundamentals is embroiled in a controversy or scam.

Below is an edited transcript of Dipan Mehta’s analysis on CNBC-TV18.

Q: How long do you think the mining ban in Goa will continue and where do you see mining stocks stabilising?

A: That's a very difficult question to answer. Only someone in the government can tell you how long the mining ban will last. But, by and large, I think it is best to avoid sectors where there is excessive interference and regulation by government. So investors could best avoid companies in mining, power or even telecom sectors.

Q: Do you think the headwinds with respect to the global markets are behind us after the ECB ruling or are there potential land mines in the form of the German Constitutional  Court's ruling?

A: It is obvious that the Indian market is driven by sentiment in the global markets and our FII flows are directly linked to how the international markets perform. So if those markets continue to soar, then I think that it will result in a feel-good effect in India as well.

Notwithstanding the various macro-economic problems, our markets have been trading at current levels thanks to the way the DAX, the CAC, the FTSE, the Dow and the Nasdaq have been trading.

Now events like the court ruling are extremely difficult to predict and they can go either way. But I think that that could only be a bit of a minor setback because eventually what is important is that all the leaders in Europe are showing resolve to save the euro and the European union.

So if at all a negative court ruling comes, I think that the setback would be temporary and the EU will work around it to ensure that all the various programmes can be implemented.

I think what is more important than the German court ruling is the Fed monetary policy because there is increased expectation on the launch of QE3 regarding which the Fed has been sending out indications. If the QE3 does not come through, then there will be some kind of cap placed on the local and international markets.

Q: How do you see the entire process of fuel price revision playing out and the probable impact on the markets?

A: I think the markets will perceive the hike to be extremely positive. The single most important factor that is restraining the markets is the fear of fiscal deficit which is already at 6.1% and will surge ahead unless the government takes some action. The second level of restraint is the threat of a downgrade by credit-rating agencies which has exhibited its adverse affect on investor-sentiment on more than one occasion.

The situation could also improve if the government outlined a road-map to improve the economy, then the market sentiment would be better. I am surprised that the markets have stabilised at these levels despite the fiscal deficit and government inaction and there is a lot of appetite to buy stocks at lower levels. We have seen a considerable amount of volume price action in midcap stocks as well, with several new stocks hitting 52-week highs from time-to-time.

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So I think that investors are taking these things in their stride and moving on with focus on stock-specific action. Whenever there are positive developments in a certain group of stocks, investors are interested in buying into these stocks.

Q: Jindal Steel and Power continues to slide. Where do you see the stock stabilising?

A: It is very difficult to take a call because the situation is quite fluid and there is no clarity on the mines that have been allocated and if the company will be allowed to retain them. Whenever controversy surrounds a stock, investors, especially foreign investors, tend to dump the stock which is exactly the case with JSPL.

As a result of this knee-jerk reaction, factors such as the company’s good performance, fundamentals or various assets and strengths are completely ignored. Such short-term responses tend to sour the investor sentiment and clouds any attempt to forecast. High-performing companies embroiled in such controversies result in the management wasting time in firefighting rather than focusing on growth. So keeping all these aspects in mind, investors should certainly lighten up on JSPL and other companies linked to scam or scandals.

Q: How did you read the Infosys acquisition of a Spanish consulting company and do you see more upside on Infosys above the Rs 2,500-level?

A: I think the acquisition is generally in line with the IT giant's strategy of trying to move up the value chain and grow consulting in the product business. The company is continuing to pursue the strategy despite criticism, loss of revenues and growing at a pace slower than the industry. Maybe the company sees a light at the end of the tunnel on the course of action there.

I think the acquisition is small and will not make such a material difference to the performance of the company. But it reflects a sea change in the company's approach and attitude towards growth and reveals a willingness to take risks. Acquisitions are double-edged swords because if they're too large then they tend to bleed their hosts as in the case of Tata Steel and Bharti Airtel.

But small acquisitions which are strategic in nature, help acquire markets, specific skill-sets or technologies certainly benefit the company in the long run. So I think the acquisition is a positive sign and certainly helps reverse the negative sentiment on Infosys.