Mkt to move to 5800 post small consolidation: Nirmal Bang

A bearish Mehraboon Irani tells CNBC-TV18 that a surge in liquidity could help take the Nifty as high 5,800 in the coming few months. However, before this surge takes place, he expects to see some correction because of the macro headwinds.

“The weariness in global markets, the meeting of the European Finance Ministers at Berlin and our own problems as far as Delhi goes could possibly lead to a minor correction, which honestly I am not ruling out either,” he said. However, the market has already been rising for nearly two months, with most front line stocks gaining around 15%. Furthermore, the logjam in Parliament has further frustrated the street, so Irani says there is the possibility of a correction. “100-150 point correction on the Nifty is possible. Whether it comes or not I honestly don’t know, but I think it’s a time for people to be a little bit watchful,” he said. But, possible action from the European Central Bank will lift sentiment again, and increase the liquidity flow, which will help the indices continue its uptrend. “I think the surge in liquidity will continue, which could take up to 5500-5800 levels hopefully in the next 1-4 months,” he said. Also Read: Bad news priced in for Maruti; HUL can do wonders Below is an edited transcript of his interview with Udayan Mukherjee. Q: How are you feeling about the market for the next few weeks? A: I have been very positive on the market for nearly two months. But, in the same breath, I think we need to accept the fact that we have already moved up 10% with quite a few front-line stocks moving up 15-20%. The big question now is if it is time for the market to consolidate and correct, and I think that could distinctly happen. I am not referring to the problems in Parliament, I am referring to the impending meeting in Europe where Angela Merkel will possibly play a very important role again. There is some sense of complacency coming in right now. I think people are actually calling up and asking what to buy. But where were they when the index was 4,900 or 5,000? Macro headwinds continue, and ultimately if you look at India, we are going up mainly because of a surge in liquidity, mainly because of possible action coming from the ECB. India ultimately counts only to the extent of the legislative action which the government has to take as far as reforms go so as to avoid a downgrade, which is impending. The fact is if there is a logjam in Parliament, the market could get frustrated and could possibly selloff. So 100-150 point correction on the Nifty is possible. Whether it comes or not I honestly don’t know, but I think it’s a time for people to be a little bit watchful. Ultimately, at the end of it all, if the ECB does what it said it will do, I think the surge in liquidity will continue which could take up to 5500-5800 levels hopefully in the next 1-4 months honestly. I feel that the market has to go up further, but for the time being the weariness in global markets, the meeting of the European Finance Ministers at Berlin and our own problems as far as Delhi goes could possibly lead to a minor correction, which honestly I am not ruling out either. Q: Do you track any of the auto ancillaries? They have done very well as a class over the last few days? A: What happened yesterday was, the companies mainly supplying to Maruti shot up I think more sentiment. But there are some decent players around. I have visited a couple of them in the recent past which I think have a lot of value in them. The first one which comes to mind is Motherson Sumi systems. The reason to be very positive is it’s become an absolute global company. If you look at the balance sheet quite closely, I think there are reasons to believe that this stock should possibly end up doing well. The numbers were good. The Return On Capital Employed (ROCE) should be 40% by 2015. If you look at the way the company has spread itself across the world and the segment to which it is addressing one can say that despite the overall uncertainties in the global environment the long-term outlook for the segment to which this company services is quite encouraging. Motherson Sumi share which is quoting as 1:2 come bonus, we have a target of around Rs 225 for this stock over the next six months. Other companies which come to mind are possibly one of the oldest companies in the auto ancillary sector called Pricol which is Coimbatore based, which is doing what is supposed to be doing or working on cost cutting and improving efficiency and I think possibly the story could unfold itself over the next two-three-four quarters for this particular company. So, there are interesting names around here and the best part is looking at the way there is a slowdown in this entire sector. These companies having to work on trying to ensure that the margins don’t come off. I think there is value somewhere along the line, if you assume that going ahead over the next three-four quarters things could start improving for the Indian economy and for the sector as a whole. So, I think valuation-wise quite a few stocks come out. Motherson Sumi is my prime pick. _PAGEBREAK_ Q: How would you approach some of these ADAG names like Reliance Communication that is sitting at 52-week lows? Is this a good shorting idea for a trader? A: Very difficult to state. Yesterday I was actually looking at the way some of these front-line names have performed from the 2008 highs and the stock which was quoting at Rs 700-800 now quoting at Rs 55. I am trying to think that the only way this stock has to go is go up. One can’t come to such a conclusion. Whether one should go short at Rs 55? I feel very sad to say that one can definitely contemplate doing that because since you mentioned Reliance Communication, I think the problems which the sector is facing as far as the regulator’s inaction goes and the question mark as to what is ultimately going to happen to the 2G spectrum auction and Reliance Infotel’s entry over the next 12 months, I think it’s honestly a very difficult call. So, Rs 55-53, does it offer value or was it the time to exit giving up? I think a little too late honestly as far Reliance Communication goes. As far as other sectors in the ADAG Group go, I think the only company which I personally am looking at a little bit positively is Reliance Infrastructure. Q: You track sugar as well. Are you upbeat or would you take profits here? A: Balrampur Chini is my top pick for the buying side. But yes, I do accept the fact that among the front-lines while Balrampur Chini stands out because it has got a better balance sheet as compared to Bajaj Hindusthan and Renuka Sugar and also because it is UP based whereas Renuka Sugar which is not UP based. I bid for UP based companies. I feel that the sugar output this year is going to come down. It may not be the great days what we saw three-four years ago for this industry. I am not saying it’s going to be a complete revival as far as the fortune of this industry goes, but there is going to be better tiding. I think the figures are going to be much better. The production is going to come down much more than what people had envisaged maybe three-four months ago because of the poor monsoon in some of the states. But having said that the fact is yes, the stock has gone up a little bit sharply, not disputing. But ultimately, I personally feel that whatever we are seeing as far as the movement in the scrip of Balrampur Chini and some of the other sugar scrips go I think the market is yet to participate. I think it’s more of the people who really understand the industry trend who are possibly buying into the stock, what people say insider trading. So, I would say Balrampur Chini, if it corrects, considering its gone up a little bit too sharply and it comes down to maybe Rs 62-63 level, I think a fresh look at this particular stock can be seen. Ultimately, I see the stock possibly going up over the next one-two quarters to a price of around Rs 75. Q: What are you telling your clients to do on these defensives like FMCG and pharma, which have been the biggest outperformers? A: I think slight profit booking and then we will board into the high-beta stocks considering the fact that we have been positive on the market. But looking at the levels at which we are right now, and the market is already on 10%, the factors are slightly tucked towards defensives. It’s easy to say that most of these defensives, especially the ones in consumer staples, are expensive in terms of valuation. But the fact is it’s a call which one is making. I am expecting the market to move up despite a small correction here and there. But what happens if there is a problem at New Delhi? What happens if the ECB doesn’t end up doing what it said it will do? There are uncertainties still at the floor. So if is there a negative outcome somewhere in Berlin or if there is a problem at New Delhi and the market falls, I think it’s the defensives which are going to save the day for investors. So it’s honestly not very easy to get out of defensives or to reduce your exposure beyond a particular extent, despite the fact that they maybe a little bit expensive. The way the high-beta stocks have gone up, possibly they could come down also if things don’t happen the way we are expecting right now.