Brexit not a worry; invest in financials, Rallis India: IDFC Sec

Anish Damania, CEO & Head-Institutional Equities, IDFC Securities, is not overly worried about the Brexit vote event impacting Indian equity market. He said the global markets had positioned themselves for the event but it is not visible in India, at least in terms of the VIX and put-call positioning.

Talking to CNBC-TV18 from the broking firm's dealing room, he said IDFC has not seen selling and does not see risk of FIIs pulling out money.

The house is bullish on the market with a target of 8900 on the Nifty. Damania said he is upbeat on financials, capital goods and engineering spaces but bearish on consumer goods and pharma space.

His three midcap bets are Nava Bharat Ventures, Adani Transmission and Rallis India.Below is the verbatim transcript of Anish Damania’s interview with Mangalam Maloo on CNBC-TV18. Q: Markets have been consolidating in fact they have come off a bit from the high point and there is a global event looking ahead how much of that do you think is priced in or is it priced in? A: If you look at it the global market are kind of positioning themselves for this event. However, India I am not seeing that be it in the VIX, be it in the Call-Put position. There is a slight bias towards taking more put positions and cutting off your Calls but I have not seen real selling so those are very small positions. As far as India is concerned probably we are not positioning ourselves for a problem. However, what I can see is that the global markets actually are positioning themselves for this event. So, from the India perspective, let us say if this event plays itself out global markets might not react too much therefore there won’t be too much of an impact on India. If this event doesn’t play out then anyway there will be a huge short covering globally in the markets and India market will have its own pace depending on how we show our earnings and how the outlook looks. Q: With the kind of consensus bullish that there is in the markets is there a risk of a big long unwinding taking place for our markets itself specially after the kind of rally that we have seen? If at all then what is the floor that you are looking at in the Nifty? A: Where I come from is, when I look at the global position the global cash position has increased. So, the allocation towards equities has been lower and therefore I don’t see too much of a risk in terms of people pulling out money. Even in this kind of a situation what foreign investors are doing is they are actually converting their futures position into cash and to some extent they are hedging themselves while buying Puts. So, the way they are positioning for this event is to buy more Puts. I think even when I was in London when we did this conference most of the people didn’t even ask me anything about the impact of Brexit. So, you can see that even the international investors feel that this Brexit may be an event but it is not going to be an event which will have an impact which can freeze the market the next day like what happened in Lehman Brothers crisis. So, even if this happens there will be a game plan as to how to do that and therefore they will be a plan which will be charted out over let us say three-four years and to that extent the impact might be much more muted. This is why you are not seeing too much of concerns coming in the global markets also. Q: At current levels most of the Nifty stocks are actually trading above their mean valuation. You have a target price of 8,900 on the Nifty what stock s do you think will lead the markets to 8,900? A: Basically the two changes which we have done to our weights over the last three months or last four months is we have become over weight on financials which is 30 percent of the market and we have become over weight on capital goods and engineering which is another 10 percent of the market. We have another 10 percent of the market which is the oil marketing companies and Reliance which is where we feel especially in the oil marketing and the gas companies which is where we feel a bulk of the drivers will come into play and they will keep on continuing to play. If I look at the overall composition I have become a little bit more bearish on the consumers and pharmaceutical which is in all about 18 percent of the market. However, in bulk of the balance 82 percent of the market is where either I have a neutral or bullish view. Q: Give me three midcaps ideas for our viewers? A: Last time I had told you Nava Bharat Ventures, I still continue with that. There is a big event which is coming up. One of their facilities in Zambia is going to go on stream in July. If that happens that will straight away mean the stock can double. Second thing is Adani Transmission, on a price to book bases it is just about one time and the kind of assets which they have, have regulated return. Some of the new assets which they have taken have expected return which is near the regulated return. Therefore I feel that once the market price recognises this in you will see a 50 percent upside in this stock. Third stock probably I would say is in the monsoon space which is Rallis India and that is something which we will like so, Rallis has done well. They have now gone got their act together. Since the last year their new product introductions have done well and that will continue. One of the key problem with Rallis over the last three years was their new product ratio had fallen now it has come back up. If the monsoons expected the way they are probably this is a stock to watch out for.