Bullish on autos, to outperform in 12 months: Dolat Capital

Q: It’s been a strong run for the market over the last few days. What is your sense? Do you think this run can continue in the month of December or would you be tempted to book some profits now?

A: Tactically, it is difficult to take a call on the market but our structural view have not changed that as the tailwinds get stronger for the corporate earnings and economy in general, we believe that the market will trade higher over 12 month period. But from a near term perspective, we do believe that over the last four-six weeks market have had a sharp run, so its time to have some consolidation, some digestion of news flow as we see over the next few months and therefore we would probably be cautious from these levels in terms of building up very aggressive positions – that’s the stance we have taken for the last couple of weeks and we will stick to that in the month of December.

As we get into the new year, hopefully, India allocations will start playing some sort of a positive role and that might lead to some more perk up and as we head into the Budget season thereafter the sentiment will stay positive but from a very near term perspective we believe this market need to consolidate and could even correct a bit from here onwards.

Q: What is your sense in terms of the broader market rally that we have seen particularly today?

A: We are seeing stock rotation happening. If you look at the broader market, we are seeing some action on the midcap side and that is stock specific. So that’s more like a day to day movement but in general we have seen a fair amount of appetite on midcap names especially on the discretionary side, consumer discretionary we have seen good appetite, we are seeing positive earnings upgrade potentially coming into some of the estimates there. So those have attracted some attention. We have also seen some action happening on the PSU banks in particular, so those are some of the action names that we are seeing but other than that, we still think that this market will go into a very narrow trading market in general.

Q: Within sectors, can you break it up into smaller sub sectors?

A: We been positive on private sector banks and we continue to be positive even though the valuations have rallied over the last few weeks. We still believe that the private sector banks will continue to outperform the PSU space while there have been some views that the PSU banks on risk adjusted basis seems to be reflecting better returns but we believe unless the credit cycle starts showing up signs of uptick, a very significant overweight position is something that we would avoid on PSU banks. Therefore, we believe that there is still some more news flow to digest especially the Q3 and Q4 earnings and therefore we would wait and watch. We are still positive in general about auto space in particular where we believe the overall trajectory seems to be on a positive note, so we believe they can still outperform over the next 12 months. We are more neutral on consumer but little more neutral to positive on discretionary space in particular. We are more neutral on IT, we are more stock specific there and we are more positive on the infra space versus the capital goods – that’s how we are positioning. We are more category or sub sector driven than the macro sector driven approach.

Disclosures: We haven’t discussed any stock but we have advised our clients on the sectors that we have discussed.