Don't see Nifty below 7500; DIIs backing mkt: UR Bhat

UR Bhat, Director, Dalton Capital Advisors is of the belief that although the market is in a tight range of 7500-8000, it is unlikely that the Nifty will go below 7500. So, it remains a buy-on-dip market.According to him, although the foreign institutional investors have been selling, the domestic investors continue to support the market. With the upcoming Fed meeting in June, the probability of an interest rate hike by the US Central Bank has moved up from 4 to 34 percent but it is still below 50 percent, said Bhat. So, it is unlikely that the Fed will hike in June but could hike a couple of times post that till December. Globally, on the newsfront, Japan and China are stable; there is no bad news from Europe. Even if the US Fed hikes rates, the Indian equity market may correct but not substantially, he said.He likes medium private sector banks, FMCG and economic turnaround sectors.Pharma, he says, has been beaten out of shape but thinks could turn for the good going forward.He does not advice buying into public sector banks but says the market seems confident of a turnaround in them. Meanwhile, with the probability of GST becoming a reality soon, one could see a dramatic change in the whole structure of Indian industry, said Bhat.Below is the transcript of UR Bhat’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Sonia: Things are not looking very good from a global front. There are some signs that we are getting of perhaps a correction on the cards with the way the money markets are going, the way the treasury market has seen a sharp fall. What is the sense you are getting? A: That is reflected in the foreign institutional investor (FII) flows also. The last few days, it has been mildly negative. But domestically, it is a domestic investors are supporting the market as of now and it all depends on how fast FIIs start selling. But, at these levels, domestics are able to absorb it. But otherwise, on the news front, it has been quite bad as far as the results are concerned at least for the last few days as far as the Indian banks especially public sector banks are concerned. But surprisingly they are doing well, so therefore, it is a sort of mixed results that as you have seen. Those which are expected to be bad have been very bad. Those who are expected to be reasonably good are fine. Latha: But overall trend of the market, do you think there is enough buyer’s strike at higher levels? Which way will the markets been ranged between 7,700 and 7,950. Chances it will break on the downside? A: It is a very tight range and something has to give. If you really count on international events, it should probably break on the downside. Latha: I do not know if you have read the Fed statement. The minutes clearly indicating that the Fed members are of view that if inflation is proceeding to the 2 percent mark, even if it is making some strides towards it and incoming data indicates growth is picking up, they would still keep the June rate hike alive. The Asian markets have not reacted savagely, they acted in the red. From Philippines all the way up to Japan and India, the loses are between a third of a percent and 1 percent. That is the maximum. Now market has lost over 1 percent and he DOW Jones itself ended flat. So, it did not really end in the red. Do you think we should be preparing for more unravelling? A: Not really. I think the June interest rate hike is not exactly on the cards. Probably the probability has increased a bit. That is about it, but I do not think there are too many people who are buying that. Even in terms of probability, it has gone up from 4 percent or 34 percent or something like that. But it is still very much below 50 percent. So, probably there would be a couple of hikes as people say in December, but may not be starting with June. Sonia: How do you approach this market as a retail investor, because so far the going has been good? Every global dip has been a buying opportunity. You think this time, things will be different? A: You have to keep buying at dips. I do not think you can take a call that markets will collapse from here because the results have been quite bad, but still the market has held on. There have been some selling by FIIs, but still the market has held on. If you really see the international situation also, things are looking up in Japan, as you saw yesterday. Even China seems to be some sort of stability has been reached, maybe whether it is long-term or short-term we do not know, but it seems to be in order. And, Europe also, there is not too much of a bad news coming from there. So, therefore, internationally if you see, things are okay, except for this interest rate hike which might happen post June. So, for the present market should be stabilising around these levels or slightly lower levels, not much lower than here. Latha: What would be your scale of preferences, sectorally speaking? We would love it if you said stocks, but sectorally? A: Sectorally, the only ones which have done well for themselves is that private sector banks, not very large ones, but the medium sized private sector banks, they have really given a very good account of themselves. They have been participating in the same sector, but still have performed dramatically well. Then you have, to some extent, fast-moving consumer goods (FMCG) has been alright. Pharmaceuticals has been beaten out of shape, so therefore, there might be an opportunity there. Things might be starting to look up, because they seem to be addressing the FDA problems quite seriously. Plus, also quite a lot of Abbreviated New Drug Application (ANDA) are probably on the way. So, that is one space where there might be a turnaround. Other than that the economy turnaround sectors are worth looking at. We might be closer to a turnaround than any time in the past. So, these are things that you might have to start putting your foot on the door as it were. Latha: So, what will you buy – non-banking financial companies (NBFC), I mean your list? A: NBFC, the private sector banks, the smaller private sector banks almost like NBFCs. That is what they do, they just lend to the consumer. So, therefore, this space seems to be holding up very well. Latha: But the private sector banks are also well priced. A: The good stocks are always well priced. Latha: You would buy them at four times or three and a half times? Kotak has 5.8 or something. A: You cannot go the whole hog, but they have shown that they have some skills which are dramatically different than the public sector banks. And you have public sector banks which show losses in a quarter which is the size of the first five year plan of this country and without any apology and they seem to be highlighting those events. So, these companies have shown a very good capabilities. So, therefore, they will always be priced at much higher valuations than anybody else. But there is a possibility of a turnaround even in the public sector banks sometime, there are a lot of noises being made about additional capital consolidation. But finally, as I said elsewhere, the assets, the non-performing assets of several lakh crore, you cannot afford to write them off. So, there has to be a turnaround in the economy, these assets have to be upgraded and have to be written back. You invested so many lakhs of crore in capacity, you cannot just write them off. So there has to be a change in management or whatever. Latha: But you do not think they are bargains? A: Not yet. Even the ones who have shown losses the size of the first five year plan, they still say there may be further NPA. So, therefore, I do not think it is a time for us to really buy. But the market seems to be very confident of a turnaround, because the public sector banks have really not lost a lot even after such dismal losses. Sonia: You did mention that the market has to break this range and the break will be on the downside, so what is the near-term and medium-term downside for this market and what could the range be? A: I do not see it breaking 7,500. 7,500 is a very important support. At the same time, I do not really see it piercing 8,000 very comfortably either. So, it is still entrapped into this range, but the range is becoming smaller and smaller, tighter and tighter. So, the range cannot be as tight as this. So it has to be slightly larger than that. Sonia: Coming to the cement space, this is one sector that is doing very well. Would you still be a buyer here? A: This is one of those good news that we have been seeing. But they are not cheap at all. These stocks are quite expensive. They have been priced to a complete turnaround and they are just showing some turnaround. Probably some pricing power. But if the economy turns around, these are the sectors that have huge delta. So, there might be a case for one to have a look at these stocks. Latha: I am coming back to this theme like a stuck record. The goods and services tax (GST). It now just looks like the tally of the Congress in the Rajya Sabha is clearly weakening. Most regional parties are in support of the GST. The Trinamool Congress (TMC) vehemently so and their numbers have increased. All India Anna Dravida Munnetra Kazhagam (AIADMK) is resisting it like all developed states are. But the numbers look like it can push over. So, do you start playing GST themes and which ones? A: GST, it will probably get done, because the Finance Minister seems to be confident that he can do it. He can isolate the Congress, it looks like. So, if that happens, there will be a dramatic change in the whole structure of the Indian industry. So, there have been traditional GST plays for quite some time. Latha: Therefore, logistics, FMCG types? A: Yes, and as long as the liquor and cigarette and petroleum products are out, it will still be half way there. But once these things are there, the GST rates can come down dramatically. And then only, you will see some benefits accruing to the economy. But till then, it is half way.