Switch from SBI to HDFC Bank, Kotak Mah Bank: Darashaw

Regan F Homavazir, associate vice president - Technical Research, Darashaw says there are two views on the 5,150-5,100-5,200 support level. When you look at the longer-term picture, the longer-term picture suggests that 4,500 is the base for the Nifty.

So any decline towards that is supposed to be used as a buying opportunity. However, there are certain trigger points for the decline to happen. “It would be 5,171, which would be very important to close below if we are going to see any immediate declines.”
He finds there is a lot of positive noise in the banking space. From being bullish on SBI, he says investors have better options in the form of HDFC Bank, Kotak Mahindra Bank and IndusInd Bank now and recommends a switch.
He adds that it is important that on the downside the 50% correction holds good so 5,080 would be the next support level. The Nifty has had to deal with quite a few events. For example, the index of industrial production (IIP) numbers, the Budget, the rate cut but the Nifty has has more or less consolidated between two levels whether it be 5,400 for many or 5,150.
Effectively, says Homavazir, what the Nifty has done is it has consolidated and it is currently appearing that it is going to breakout. It has a very neutral stance regardless because there has been lack of momentum on both sides. “So the Nifty is not going either up with any momentum or going down with any momentum which suggests a very neutral bias,” he adds. Below is an edited transcript of his interview on CNBC-TV18. Watch the accompanying video for more. Q: Any confidence in terms of the fact that 5,150 maybe a solid base for the market because of the way the market has attempted to test it and then always rebounded from it?
A: Since 5,150 has been a key support level when it breaks, it will have some very serious ramifications. I would suggest, instead of looking at the Nifty since the Nifty has become more or less neutral, you will have to start looking at stocks and be very stock specific. When we look at the banking stocks, it appears there is a lot happening there.
We were very bullish on State Bank of India (SBI) right from Rs 1,800 onwards to where it stands at the moment. It is important that today there are better options available than SBI so we would recommend a switch from SBI into HDFC Bank and Kotak Mahindra Bank. The HDFC Bank stock has the potential of immediately heading towards a target of Rs 650 and I wouldn’t be surprised if it moves to Rs 1,000 there onwards. Obviously, the time element is going to be pretty substantial there.
Kotak Mahindra Bank appears that it has just started on a run, it is embarking on a run and Kotak Bank could have a target immediately at about Rs 720. Post that we would be looking at Rs 900 as well but any decline in HDFC Bank and Kotak Mahindra Bank should be well used for buying.
In the second leg of banking stocks, we would have something like an IndusInd Bank. IndusInd Bank has been showing some phenomenal strength to the market even in a market which is going up and down on a dime, I would say, it has been constantly moving up. So IndusInd Bank would be another pick in the second leg of stocks and the target for IndusInd Bank would be about Rs 495. Q: From the financials space, you like some of these non-banking financial services (NBFCs) as well. Why have you picked names like Power Finance Corporation (PFC) or Reliance Capital?
A: PFC is doing something which is very replicated in the past. It is currently consolidating after a breakout and that is supposed to have a very bullish stance. So PFC on a decline to about Rs 170 or one could start to look at it right now with the hypothesis of being it in the portfolio for investments and play for a target of over Rs 350.
Reliance Capital on the other hand has been a very slow mover and in effect Reliance Capital even in the selling has had some quite serious selling and it has corrected from Rs 481 to where it stands at Rs 345 approximately. We consider that a very decent correction. The longer-term picture when you look at Reliance Capital suggests some very serious buying that could emerge at current price point and a maximum fall to Rs 300 but the upsides are pretty outlandish. Immediate upsides would be about Rs 500. Q: What you are telling your clients to do on Infosys after the recent collapse?
A: Infosys has been quite a disappointment and where it stands currently does not give a very clear picture. It appears that Infosys has become oversold in the very immediate term but everything that gets oversold is not to be bought. On Infosys we are of an outlook that it is going to be an underperformer and should drop to a price band of Rs 2,100 and Rs 1,900 where it could become a core investment. Q: Cement has been under some pressure this last fortnight. How would you trade faces from there?
A: I would consider Grasim as a very key investment in the cement space although because of its cement holding, it becomes a large cement player too and Grasim we are looking at not falling. We would recommend a buy and we look at immediate upsides to Rs 3,200 and there are higher targets of over Rs 4,100. Grasim has consolidated over an extended period of maybe two years and has broken out. While the breakout takes place, it is imperative that the breakout of Rs 2,400 sustains on a monthly basis. So in the presence of that the target of Rs 3,200 and Rs 4,100 would be met.