Watch out for defensive deals as market slides: Anand Rathi

The market is witnessed heavy selling pressure on Monday over speculations that India and Mauritius may review the double tax avoidance treaty and thus impose tax on capital gains routed through the island. Overseas investors spooked as over 40% foreign direct investment (FDI) flows in India originate from Mauritius. "Although pessimism is the best environment to take positions in quality stocks, one should wait for some downside to buy in Indian equities," said Devang Mehta, vice president and Head- Equity Sales at Anand Rathi Financial Services.

However, he advised that investors with long-term horizon can go long in defensive stocks that are likley to participate in India's growth story when investment cycle witnesses a tunaround.

Below is the verbatim transcript of his interview with CNBC-TV18's Anuj Singhal and Latha Venkatesh. Also watch the accompanying video. 

Q: The Nifty is at 5,300 levels, do you think the panic could take it even further down, or, market should stabilise at least now and see some rally from here on?

A: It has been a difficult time for the market. In the last one week, the tapering of US economy, followed by the reappearance of European debt woes, Chinese inflationary situation, and also the Indian inflation and interest rate ticking scenario have acted as negative triggers. For now, the investor sentiment is downbeat. Although pessimism is a best time to start accumulating good quality stocks, but wait for some more downside and clarity to emerges from the reform front also.

Q: The market had similar fundamentals even some time back. For instance, we had ugly inflation number at 9%, which everyone expected would be 8.5%, most of last week. This was followed by credit policy and the rate hike as expected and RBI's fairly hawkish statement. The Chinese inflation number and their increase in reserve requirements also happened last week. So, the bunch of bad news that the market is reeling under was known to us and the fresh supposed bad news has been corrected or clarified by government authorities. Now, would you advice your investors to buy or do you think this market is nervous for other reasons?

A: There could be two sets of investors, or rather traders. Traders need to follow strict stop-losses at this point of time because markets have become very volatile. However, investors with long-term horizon could use this as a good opportunity to start accumulating quality stocks. In terms of quality, I mean defensive stocks and stocks which could participate when India's long-term growth story and investment cycle starts. Hence, one has to be very stock specific at this point of time rather than following Nifty blindly.

Also read: Pledged shares sell off, more pain in the offing?

Q: On intra week basis, do you think the market will be able to shrug off the supposed news which has been clarified and get back above the 5,340 level? Or Nifty will plunge that support level and start trading in a different lower range altogether?

A: Fundamentally, I would say 5,100-5,200 is a good level because valuations get cheaper at this point of time and one can enter around those levels.

Q: Talking about ADAG stocks and Reliance Infra is particular, there are speculations of an index change and purely on the back of this news, Reliance Infra is seeing aggressive and it's down about 6%. Also other stocks of the same group like Reliance Capital, RelPower have registered notable declines. Would you say that in stocks at least where there is no negative news it would be a good time to maybe buy a bit, or would you stay out of the group?

A: There has been a lot of negativity surrounding these stocks for long. Since Reliance Communications has its own set of problems, we know that Reliance Power