Midcap IT stocks alive; October full of promise: Experts

The markets continue to consolidate in the band of about 5,650-5700 which is still a no-trade zone. Sudarshan Sukhani of s2analytics.com explains to CNBC-TV18 his perceptions on the way forward for the market.

"Yes, it is still a no-trade zone. Today is the third consecutive day when the markets are locked in that narrow 50-point range. And This is what I has suggested on Monday. The market moving by five-to-ten points does not provide for any pecuniary gains. So it is wise to stay away from the Nifty. However midcap IT stocks have begun to emit sparks of interest. So, stocks like Polaris are suggesting that perhaps a deep correction in getting over."
PN Vijay of askpnvijay.com adds there is little room for pessimism for the October series as the expectation on the announcement of further reforms by the government is high and the Indian markets have underperformed the global markets by rising 6 percent while other markets have been up 13-14 percent. Below is an edited transcript of Vijay's analysis on CNBC-TV18. Q: Now many global policymakers are talking about how QE3 or the latest round of quantitative easing may not spur growth going ahead and there could be an over-bought situation leading to a sell-off in global markets. Is that something that you expect through the course of the year?
A: I do not think so. The general feeling in Europe is that quantitative easing would support the Italian and Spanish bond markets. It is not expected to improve liquidity with consumers. It is more of restructuring of sovereign balance-sheets which is very positive for economies and for stock markets.
As far as QE3 is concerned, the general opinion is that the impact would be very limited as proved by the lack of a huge run-up in oil prices after QE3 was announced. But I think the global markets have not rated it too positively or are too gung-ho on liquidity.
They have been quite positive because the ECB standby funding which has been put through. So I do not think it's a great fear. And I do not also feel that India will have to run along with global markets, because India could be a perfect contrarian play.
Strangely, an overdose of liquidity in global markets is not good for India because that would push commodity prices could go up and our problem is high commodity prices. So the Indian stock market essentially, depends on the domestic reforms that have been announced and others possibly on the anvil. Q: What is the sense now about the next phase of reforms? Secondly, what is the word now on the Cabinet reshuffle, is that likely to have any kind of market impact?
A: Regarding the reforms, there is an immense feeling of relief that the political fall-out has been contained. In-between it looked as if a strong coalition against these measures was building up. But the UPA and the Congress in particular, got away with the gamble. So much of reform in FDI and in petro-product prices in such a few days was quite lot.
And then the government announced reforms totally overhauling the power sector which implies higher power tariffs and improving the finances of the state electricity boards, which apart from GST, is one of the biggest domestic reforms one could talk about. So the pace is on in reforms and next reform could be the allowing of FDI in insurance.
_PAGEBREAK_ Q: Could you identify stocks that would provide an alpha to a portfolio, which would outperform despite the market perhaps getting into a range or not having too much of an upside from these levels?
A: If one were to want an alpha, it not very difficult. I think there is still some value left in metals. There has been a big run-up in banks and some run up in real estate. But frankly, I am not so sanguine about real estate picking up that fast. Infrastructure also has good buys. Hindalco tops my list due to a lot of firming up in copper and aluminum prices and substantial improvement of capacity by the company. Though Hindalco is a large cap, it can offer you great benefits. With the Index at 5650, Axis Bank should not be at Rs 1,120 but a lot higher as it has not had the type of run that ICICI Bank or YES Bank or IndusInd Bank have had. So Axis Bank is another blue-chip that can give you a great alpha. Tata Motors can also give you a much higher return than the Index. So, these are all fairly safe stocks where you can still get an alpha of about 10-12 percent vis-à-vis the Nifty. Q: What's your key take-away from the talks on the sale of stake  in USL to Diageo? Do you see any kind of an opportunity in the entire UB group?
A: Diageo is buying stake in United Spirits which is Mallya's jewel in the crown and that's been a big climb-down for Mallya. This will be a game-changer because Mallya will have to unwind the entire lot of guarantees and shares pledged by United Breweries and United Spirits.
I don't think there is much joy right now in the Kingfisher FDI because its market-share is down to single digits. So, I think he has bitten the bullet and the crown jewels are being sold. But I think this augurs well for the group in the long-term. He is also selling Mangalore Chemicals which is again a fairly good company. So there is going to be a lot of asset-sales, though he will come out trumps.
But these shares have already run up a lot and Kingfisher is a very risky buy. If one took it, one may get superior gains but it’s also possible that there may not be any foreign suitors for Kingfisher for sometime.
_PAGEBREAK_ Q: What is your view on cement?  Is this a good time to buy cement stocks or do you think the rally is just intermittent?
A: There was a huge rally in cement, contra to the market itself. Most of the cement stocks have heavily outperformed the Index in the last 12 -15 months. I don't know if it is sustainable.
I would imagine the new gush of rally in this bull market, which has been going on with some corrections, would be more in metals, infrastructure, banks, automobiles, capital goods and real estate. So cement is not attractive with the valuations not being very enticing more. Q: What do you sense about the October series? The earnings season is to begin in about two weeks from now. Do you think the trends are on the downside?
A: Not at all. I think October will probably see more retail participation. So far, retail has stayed out and only in the last couple of days we are seeing big movement coming in from portfolio HNIs and so on. People are not expecting great things from earnings.
This is a very macro-economy-driven market and my sense, is that the government is very confident of reforms, will almost surely allow FDI in insurance, initiate a couple of big-ticket announcements on infrastructure, in GST and in capital gains tax.
So I think the momentum will really come from Delhi. The path is quite clear. There has been some amount of profit-taking. India has underperformed the global markets. Indian markets have been up only about 6 percent while other markets have been up 13-14 percent.
So I see absolutely no ground for pessimism at all for October. In fact, October is going to be an excellent month because of the macro-economic factors.