Wait for stock prices to fall before investing: Nirmal Bang

In an interview to CNBC-TV18, Mehraboon Irani, principal and head – private client group business, Nirmal Bang Securities says there is a lot of negative sentiment in the market right now. From an investment angle, the compass of scrips which you can look at from the buying angle is just not increasing.

During these challenging times, investors need to be very patient and wait for the stock prices to come down and go and buy into them. Below is an edited transcript. Watch the accompanying video for more. Q: Do you see more downside and pain continuing after the last few weeks?
A: Honestly, there has been a lot of disappointment for the market. When the market falls, we talk of 4,800 coming on the higher side, so in short it is a range but what comes out of this market is the fact that 55% of the Sensex scrips are ruling much higher than what they were ruling when the index was 21,000 way back in January 2008. But as the balance 45% of the scrips, which are quoting much lower and which have a slightly higher weight, look at the Reliances, the DLFs and possibly even names like SBI, they are quoting much lower than what they were quoting.
The market has got clearly skewed in favour of certain sectors. Like today if you ask anybody who looks at fundamentals properly, the same names come out and the market is always smarter than all of us. Most of these names whether it is Lever, the HDFC Bank, the ITCs of the world, they are quoting much higher and in terms of valuations, they are quite rich.
What does an investor do, go and buy the same scrips? I personally feel from an investment angle, the investors need to be very patient and wait for the stock prices to come down and go and buy into them. The compass of scrips which you can look at from the buying angle is just not increasing. The same sectors, power, infrastructure, metals, mining, real estate, capital goods are all in bad shape. Stocks in these sectors have come down very sharply but are these reasons enough to go and buy?
The environment is very challenging; capital investments are just not taking place. The rupee is under pressure, the margins are under pressure. In this environment, despite the fact that most of these stocks in this beaten down sectors are coming down very sharply, investors don’t have much choice. The choice is restricted to the same FMCGs, the same consumption, the same pharmaceutical, the same IT to some extent the same private sector banks and most of the stocks in these sectors vis-à-vis the overall market look expensive.
So as and when some of these good quality stocks come down, people have to just go and buy into them irrespective of what the indices are. The sad part is the same sectors are still in trouble and nothing much is happening for that. But from a trading angle, honestly, I feel the market could be getting ready for a slight bounce on the higher side and it could be a buy trade for traders coming in the short run. Q: What do you expect to see from L&T today?
A: Not too much of expectations. In terms of capital because it is an infrastructure company, the best part and the worst part for investors is that ultimately the way you book your contracts and the way you show it, that reflects in the figures. What will be looked at by the market with interest is what guidance they give, what order book they talk about or what is the growth of the order book they are talking about in 2012-13 that is the interest the market is giving.
Quite a few people are already speculating that that is going to come much lower than what most people were expecting just about a couple of weeks ago and that is what the market is going to look out for. If there is disappointment on that particular front, I will not be surprised if the stock comes down. Q: The sector which has taken the most punishment is the public sector banks. Will you buy them now?
A: Honestly, no. I have been negative on this particular sector and I think the last word as far as quality assets has still not been heard. It is going to be painful for at least the next one-two quarters. Some of the numbers if you ask me, shamelessly – some of the bank managements have gone to the extent of restructuring the assets. We were all talking of the aviation sector and I think in the next one or two quarters we will be talking possibly with the State Electricity Boards (SEBs).
The outstandings are huge, most of them are in very bad shape and most of the PSU banks have exposure to this particular space also. The restructuring of assets honestly leaves a very bitter taste. I know that valuation wise some of them are very attractive.