RBI's intervention may see Nifty back to 5,100: Fortune Fin

Abhjit Chakraborty, senior vice president - Institutional Equity, Fortune Financial expected that with the GAAR issue kind of postponed, market should have rebounded but the fact that even after that incident the market has seen a sharp fall doesn’t auger well.

The first quarter gain of the calendar year has been completely given and we are now trading close to the levels of November-December, he says, adding, “We have given up entire gains. The sentiment has clearly been broken and has completely reversed from what it was in the first quarter.”
Currency is the current bear and there are no quick fix solutions to it which is leading to a lot of FII outflows apart from the other issues globally and domestically. There could be a short-term bounce back. With the measures that the RBI is taking investors may see the Nifty bouncing back to 5,050-5,100 levels. “But I don’t think that the pullback is going to be very sacrosanct or is going to be a trend reversal because there are too many issues,” adds Chakraborty.
FII investors are simply tired and bored with all the policy flip-flop that is happening and the lack of clarity on currency. There are lots of structural issues in the economy which is putting pressure on the currency and though the RBI is trying its best to withstand that slide, it might prove to be very tempered. It is now time for support to come in from the government as well on the fiscal front. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: A string of disappointing midcap numbers. Have you had a look at some of them such as Sintex or Jain Irrigation that just came out? What’s your call on these high profile midcap names?
A: These companies are still struggling to see the underlying demand meeting the expectation of the analyst community and also the financing cost has been a big drain. There is segmentation in the corporate results which is coming out. The companies who are leaders in the segmental space are still managing to meet some industry expectations, but the smaller ones whether it is in infrastructure or in banking are struggling to meet analysts’ expectations. So there is clearly disappointment as you can see from the earnings part on those counters. Q: What about IT? Any picks from there, where numbers have been disparate but that’s the only space that could likely benefit from what’s been happening with the rupee?
A: The pecking order in IT largecap stocks hasn’t really changed. It still remains TCS, HCL Tech followed by Infosys. In the midcap space, Hexaware has attracted a lot of attention. Apart from the fact that the numbers and performance has been very good, there is also talk of some foreign investors coming into the company. So that could keep that counter perky for some more time to come.
It’s a very common theme to say that rupee depreciates so all exporters are going to benefit. In a practical world, it doesn’t really work like that, because everybody, whether it is pharma or IT or every other exporter company does have a hedging strategy and if there is a sharp fluctuation in the currency they end up making mark-to-market losses. So the results might not be inline with correlating to the fact that rupee has depreciated. Q: Would you buy something like a JP Associates or even a BHEL from the broken down infrastructure names?
A: No, I would still stay away from the infrastructure and capital goods names because hope has not materialised. There were expectations that there could be some improvement in the order inflows or that financing costs or the interest costs would come down after the RBI signals its reversal in policy. But none of them has actually taken place at the ground level. So yes, at the beginning of the year there was a liquidity surge and these beaten down stocks saw the maximum alpha in returns time. But as fundamentals catch up you realise there is not much underlying fundamental strength for the rally to continue and nothing has changed really.
As far as BHEL is concerned, it’s a structural short. There is absolutely no reason to get bullish on BHEL at any level. There could be a bounce back anytime and then once again it starts sliding because as things stand today there is no visibility on order inflows for the company and the company might not have any business after a few years down the line as the 12th Plan orders are already given. I think it’s a structural issue in BHEL and unless the government decides to give some new direction to the company in terms of new business activities, it’s not going to be on the radar or buying list for anybody.