The gas price hike is broadly positive, but the market is unlikely to be excited about it because the quantum is much lower than what it was expecting, feels Mehraboon Irani of Nirmal Bang Securities. In addition to the BJP not getting an absolute majority in a key state like Maharashtra, the market is also likely to be disappointed at the government playing it safe on key reforms such as gas price hike feels Irani.
In an interview to CNBC-TV18’s Latha Venkatesh, Irani says he is bullish on oil marketing companies because of diesel price deregulation. He is bullish also on telecom stocks, which he feels are now available at attractrive valuations.
Speaking in the same discussion, Sandip Sabharwal of asksandipsabharwal.com said the market has most likely seen its peak for this year given both domestic and global headwinds.
He feels the turmoil in global markets has not played out fully and does not rule the possibility of the Nifty sliding to 7100 over the next few weeks.
"The correction in global equity markets is not over and I see a second round of sell-off coming through," he said.
He is recommending his clients to buy ready with a list of stocks to buy should the correction come through. Sabharwal rates capital goods and banking as the two sectors investors should buy into during the correction.
Below is the verbatim transcript of Mehraboon Irani & Sandip Sabharwal's interview
Ekta: What is your reaction in terms of how the markets could move tomorrow based on all of the newsflow over the weekend?
Irani: I would say a little bit negative but in a very small way. I think the reasons are very simple. As far as diesel deregulation, a very big positive. Gas price hike on the whole positive, the quantum not very positive and could affect traders in stocks like ONGC, Oil India and Reliance because they are heavyweights, they will have their own impact on the indices.
Coming back to the election verdict, I think positive definitely that two congress ruled states are now going to be controlled by the market’s favourite party that is BJP. Coming back to the margin of victory, slightly disappointing as far as Maharashtra is concerned but on the whole one should understand that there is no choice for the BJP but to go and align with the party hopefully by this evening with whom they have slept with for the last fifteen years. For the Sena also I personally feel that there is not much of option but to possibly agree to the BJP because ultimately they have been out of power for the last fifteen years. So what happens? 15 years of being together, one month of separation and now again being together. So the route is different but ultimately the verdict is the same. It was earlier the BJP-Sena now again it will be the BJP-Sena.
But the market over the last few days was expecting a slight majority I would say for the BJP alone and that has come as a little bit disappointment but on the whole Haryana conquered well, BJP again going to be in-charge of along with the Sena hopefully by this evening other picture will be clear as far as Maharashtra is concerned. So by and large, that is very positive. As far as the government measures for gas goes, I think again positive, they have done something on LPG front also. So I think diesel deregulation is a very big positive. So it is on the whole positive but this verdict may prove a little bit of a dampener and considering the fact that they will have their own negative, the gas price hike on stocks possibly like Reliance, ONGC and Oil India, market was not in a mood to go up sharply at least not in the very near future. So even if we have slight gap up opening, which I am not very confident about, even if we have that, I personally feel market will possibly sell into it.
Latha: What is your sense? Our experts just before you joined us were making the point that this rally will get sold into. Are we going to have a rally but not a gung-ho rally?
Sabharwal: Prior to yesterday, there was a lot of euphoria in the markets about the markets moving up especially after the polls came out. The second part was these oil reforms, which are announced yesterday. There also the middle path has been taken where the price hike on gas is not as much as what people expected. However, diesel regulation has obviously no negative, it is a long-term positive. Where people see positive in that is for the oil marketing companies. In the long-term, it might reduce or destroy value in oil marketing companies because the private players will come in and they will start taking market share away from these companies. So overall taking into account what is happening domestically as well as the global scenario, I have been of the view that we have seen the peak of the market for this year already. So I don’t think that these things are going to change that view in any big way.
Latha: Let me start with specific sectors that you may buy tomorrow or in the near future in the light of the decisions of the weekend?
Irani: Considering that the market has been largely affected by the global turmoil which we are stating and possibly the worst is not necessarily behind us and the market is in no mood to go up. So I personally feel these events which have happened and the gas price hike, the quantum which has happened which possibly the market is not going to like especially the traders, the investors, heavyweights like Reliance, ONGC and Oil India, I feel that the government has played very safe. When I say safe, they don’t want to lose too much of political capital because it is going to impact the fertiliser and power companies where a policy as of now is not in place. So on the whole, the market may not get very excited about this announcement, though I personally feel the diesel price deregulation and the gas price is definitely very positive for the longer-term and they are going to review the price every six months.
No great hurry to buy into stocks but on the whole I feel quite positive for the oil marketing companies.
Besides that, I think telecom is the space, which has relatively underperformed and that is one sector which I am ready to look at and we are going to add positions for our clients because while we feel that the market is not in a position to go up, it is not that one should be sitting on 100 percent cash so some bit of reshuffling has to be done.
As far as the oil and gas space, not in a hurry to buy into that maybe possibly look into oil marketing companies because the gas price hike while being positive, I don’t think it is going to excite the market because the quantum is much below the market expectations.
Ekta: I am going to ask you about the power and fertiliser stocks. What would be the likely impact in tomorrow’s trading session? Any stocks that you would possibly look into buy if there is dip especially in the fertiliser space? Will banks fall?
Sabharwal: The question of what stock to buy depends on a macro view more. So my view still remains that we go back to around 7,000-7,100 market over the next two-three weeks. I believe that the correction in global equity is not yet over and we will see a second round of sell-off coming through. So I think that is the time when one will have to buy. So then what should one buy at that stage? I would say clearly capital goods stocks and banks at that stage. Where will the prices be? Maybe the prices will be 15-20 percent cheaper. That is how people should play it, they should be ready with what they want to buy and clearly capital goods and banks would stand out at that time and those will be the sectors to buy.
The export-oriented story - I don’t think that has many more legs left given the relative appreciation of the rupee against the basket of currencies ex of the US dollar.
That is what is hitting margins. My view was that all this technology companies will be hit by cross currency movements. So these companies have not spoken as much in the results but I think that is the reason and a bigger impact will be seen in Q3 for IT companies.
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