The stellar performance by the key benchmark indices last week is unlikely to get repeated pre-Budget, believe experts. According to UR Bhat, MD, Dalton Capital Advisors the cheer from the rate cut by the Reserve Bank of India on January 15 will not last forever and market will look for new triggers pre-Budget. However, global events like Greek election on January 25 followed by FOMC meet will be major triggers for global markets next week.
After trading sideways for better part of the week, benchmark indices spiked on Thursday boosted by a surprise 25bps repo rate cut surprise by the RBI. For the week, Sensex and Nifty closed at 28,122 and 8514 respectively with a 2.4-2.8 percent bump as compared to last week's closing levels.
Speaking to CNBC-TV18 on expectations from Budget, Bhat says the 4.2 percent fiscal deficit target is difficult to achieve but if government continues with its reform drive, market may pardon that number being missed.
Adding to the discussion, Anuj Jain, director – Equities, IIFL Private Wealth Management says that Bank Nifty can rally around 3-4 percent over the next two-three months. He recommends buying Syndicate, OBC or SBI on dips. Given the central bank has started cutting rates and government appears to be serious about implenting reforms, banks are likely to be the key beneficiaries in the long-term. Concurring the view, Bhat also recommends buying cyclicals, especially public sector banks.
“Even private sector banks are very good plus other cyclicals are the ones one should get on to. I do not expect a huge return in 2015 largely because there might be an interest rate hike in the US,” he adds.
Below is verbatim transcript of the discussion:
Q: It was a big event for the market, the rate cut that came in spurred sentiment. However, do you think it was just a knee-jerk reaction or do you think that now this market is headed higher because the rate cutting cycle has begun?
Bhat: It was a very big event, quite a surprise as far as the timing is concerned. But 25 bps will not change the life of corporates in a very big way more so because of the fact that the free market at least had factored this for quite some time. In fact the 10-year guild has come down by about 120 basis points in the last one year. So, the market was always factoring this but the event drove sentiment.
At the end of the day this cheer cannot last for very long unless it is supported by other decisions, other news flow, especially next week is not going to be the best week as far as international events are concerned because we have Greek election next Sunday, then we have an FOMC meeting immediately thereafter where the first hint about a rate hike could be given. So, all these things will decide the sentiment. In India there may not be too much of news till the Budget now.
Q: What is your sense about the charts of both the Nifty and the Bank Nifty? Is there more juice left in this contract itself?
Jain: The Bank Nifty is at an all-time high and so, it has moved up beyond that zone. Now unless it doesn’t break 19000 which is about 2-2.25 percent from where we have closed on Friday, you are looking more like targets of closer to 19700 in the medium-term of about 3-4 months. So, you can get a 3-4 percent rally may be in the next 2-3 months again. Only if 19000 gets broken will you see 18500 come in.
On the Nifty, however, we have not made a new high till now. So, momentum would catch up into the market only when Nifty crosses minimum 8564 which was the high level more or less on Futures on Thursday when the cut was announced. However, 8620-8625 and then you will see a very sharp move up.
On the downside, 8440 still holds to be sacrosanct. Given there is volatility in the world markets, as long as we are holding 8440 the new uptrend which is more bullish will be intact. It is only if we give up 8440 that this new up move that we have had post the 25 bps would get eroded.
So, we are in a safe zone, you still have roughly about 100 points left for that. That is a good support level to hold you through for the next two-three sessions. The bias is definitely positive.
Q: You did say that one rate cut is not enough to spur growth, but is it enough to spur buying in the cyclicals. What would your bias be? Are you a buyer now? If yes, would it be banks?
Bhat: Banks are the obvious beneficiaries. Even as far as lending rate cuts are concerned they may not go the whole hog and cut because hardly anybody has done it and especially the public sector banks need all the money to provide for the non-performing assets (NPAs) that are there. So, I do not know whether that will really impact the lending rates immediately. This means public sector banks, in fact all banks will do very well, they will gain quite a lot on their treasury book and therefore, they are the natural beneficiaries.
Q: Do you advice buying PSU banks or private banks at current levels?
Bhat: PSU banks have more value provided the government takes the right steps in terms of capitalising and in terms of finding CEOs and stuff like that. As long as reform process in public sector banks continue, there is certainly some value there.
Q: We got better-than-expected earnings from the likes of Wipro and Infosys but on the flip side we got disappointing earnings from TCS. Technically, how are you positioned in the IT names now and anything that you would trade as we head into next week?
Jain: Over the last couple of days the index since the Infosys results has been on an uptick, there is a positive bias . Given TCS results, the way it closed today post results it is indicating that it will continue to be range bound and so, Rs 2,465 on the downside and Rs 2,600 on the upside.
What was heartening was the HCL Tech pre-result rally that we saw and so, at Rs 1,640 I think that is poised towards Rs 1,720-1,760.
Infosys will have a positive bias. About 2-3 percent higher there is some resistance. For Wipro, the results did come out, and if it can cross Rs 560-565 band then there is traction till Rs 585-600. So, there is Rs 560-570 and Rs 585-600 resistance which is the next band. Therefore, depending on the reaction on Monday Wipro could give a leg up of a couple of percentage points.
Q: Within the individual banks, which are the charts that you would play on the long side?
Jain: When you ask me about PSU banks, on Thursday they had given a breakout and were looking good, be it Syndicate, OBC, SBI. However, on Friday the way they have closed giving up a 1-1.5 percent there could be some consolidation here. So, any of them if you get, Bank Nifty 2 percent lower, so PSU banks about 2-2.5 percent lower make a good buy and that would be the area to accumulate.
On the private banks side, Axis Bank after the results has stayed over Rs 510-512 level. So, that is looking a stronger to me on the charts for attempting Rs 525 first and which looks likely that it can cross that resistance and then may be Rs 555. So, among private banks I would look at Axis as the next mover which will have momentum.
Q: It was HDFC Bank and ICICI Bank which were better performers on Friday. Even for the week HDFC Bank is a fairly decent performer. Any view on HDFC Bank and ICICI Bank?
Jain: Given that HDFC Bank has closed over Rs 1,000 levels, it can move up to Rs 1,050. The actual supports for HDFC Bank would now be around Rs 975 range.
On Thursday itself it had given a signal of about Rs 993 that it would now move out to Rs 1,050 zone. However, if one is looking at momentum building up I stick to my call that I think Axis Bank can do better.
ICICI Bank looks fairly good as well. The whole bank Nifty is looking poised. So, it is a question of one stock over the other. Like all of them which are contributing except Kotak Mahindra Bank which can consolidate for some time because it has had a big dash post the ING merger.
The others will now catch momentum. PSUs are consolidating, so private banks would have a slightly better run and Axis would be sharper than HDFC Bank over the next 10 days.
Q: The oil marketing companies are not allowed to keep much of the money that they could have made. The excise duties have been increased as well as petrol prices have been cut. Do you think the juice as far as oil marketing companies is over and done with?
Bhat: The whole issue there is you can't take a bet on them based on what happens to the oil market altogether because the government keeps increasing excise. It is probably the right thing to do because if retail process keeps coming down the demand will increase and that will increase our import bill in terms of quantity. So, best thing is for the government to take it instead of leaving it with the oil marketing companies and part of it can be passed on to the consumers.
As long as it is capricious, the decisions are not market determined and therefore, it is very difficult to take a call on what to do with these companies.
Q: What should one realistically expect from the Budget this time? How important is that fiscal deficit number? Is the market ready to forgo that number if it is not met because of the other reforms that are being undertaken? What would your expectation be?
Bhat: The 4.1 percent number is a bit difficult to beat and so, there would be some slippages there. However, if they make the right noise on the reforms front which they are doing with all these ordinances and if the ordinances get passed, the market will pardon that 4.1 percent number being missed.
Q: What is your take on the market now, are you a buyer or would you just wait for the Budget to be passed or to see actual growth on the ground?
Bhat: Over the next two weeks we have important events globally. That is something we need to watch because there may not be too much of a news flow within India. So, the market would look to what happens to Greek elections, what happens in FOMC meeting.
Q: As an investor, are you just holding back?
Bhat: Yes, you need to hold back and we have six weeks to the Budget. So, for the next two weeks I do not think there is anything much that needs to be done but two-three weeks before the Budget there will be expectations built up on the Budget and the market might actually start anticipating some things and run up a bit.
Q: The pocket that did the best last week was cement, Ultratech, ACC, Ambuja were all up about 7-12 percent, anything there that you would trade next week?
Jain: Given the way Ultratech closed on Friday, it gave up most of its steam, it is good to pick up closer to Rs 3,000 levels or Rs 2,990. It is poised towards Rs 3,300 and therefore, it is a buy on dips.
On Friday it gave up and so, there is a possibility of a couple of percentages down before it moves up.
India Cement on the other hand has kept the steam on Friday. So, where it closed at Rs 102, stop loss of about Rs 99-99.50, there is some minor resistance close to Rs 105 and it can actually move up to Rs 112-113. So, there is still momentum there. The smaller ones will also start and so, JK Lakshmi has started showing some accumulation there. However, Ultratech on dips and India Cements even at current market price for the momentum.
Q: I want a couple of unrelated stocks and their chart views, SUN TV as well as from the FMCG pack will you play any, if yes which ones?
Jain: On the FMCG pack we have already seen 10-11 percent move whether it is Hindustan Unilever or Nestle or Marico. No bet on ITC because it is pre-Budget time and therefore, there has been a tactical shift from ITC to all these stocks.
The charts are still showing momentum for HUL for a couple of percentage points but whether I would like to enter at this point when they are better opportunities in the market is the big question.
Sun TV was actually a breakout based on what happened in SpiceJet. So, I would like to see it consolidate at current levels for a day or so because there is a good likelihood that post this rise it could be down 2-2.5 percent before taking a call. This is something which has been very news driven. So, abstain from trading into this counter but if it does stay around these levels for 2-3 sessions then one could think of entering it.
Q: Any strategy that you would give us for stocks that one could trade on Monday if you just had to pick any stock that tops your list now?
Jain: There are certain stocks which stood out today on the basis of which they were accumulated. Gateway Distriparks despite the way it has moved up, even at the current levels of Rs 365 any dips here or up to Rs 355 one can look at picking up this stock.
For medium-term the target is as high as Rs 400-420. In the mid-term, playing for about 15-20 days around Rs 375-385 is what one should get which is about 7-8 percent move and is still left into the counter.
We have seen a big move coming along in banking to infra. So, there was a lot of short covering and a move up there. There are signals both in Sadbhav Engineering, Blue Star and in Voltas but I would like to give Blue Star as a call, Rs 354 is where it has closed and on dips, up to Rs 345. Medium-term again like Gateway Distriparks the targets here are very high about Rs 425. So, for somebody who is looking as an investment call also we are advising this.
For a safe person who does not want to play any of these there is Glenmark. Around Rs 722 looking for Rs 750 target and stop loss of about Rs 705.
Q: What is your expectation at an index level for 12 months and 24 months? What would you advice investors now at these levels or at dips?
Bhat: We will have to see what the Budget looks like but if the reform momentum continues, cyclicals are the way to go, especially public sector banks. There might be a dramatic change in PSBs if the policy regime helps. So, that is one sector where things can look quite good for the next couple of years.
Even private sector banks are very good plus other cyclicals are the ones one should get on to. I do not expect a huge return in 2015 largely because there might be an interest rate hike in the US. So, that might actually unsettle markets a bit and that would continue into 2016. Year 2015-16 would not be as good as 2014 but 10-15 percent return is probably par for the course.
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