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Last Updated : Sep 11, 2015 06:22 PM IST | Source: CNBC-TV18

Give mkt 1 month to bottom out; buy gas, telecom: Elara Cap

Harendra Kumar of Elara Capital suggest playing the branded apparel space for the long-term.


Harendra Kumar of Elara Capital believes the market will see a bottoming out in the next one month and one can buy a lot of select stocks in the current market.


He believes the foreign institutional inflows are expected to be positive in the days to come.  He suggests buying select midcap stocks in the oil and gas and telecom space form a long-term point of view.


He also recommends playing the branded apparel space, adding that the brokerage has initiated coverage on Raymond.

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Below is the verbatim transcript of Harendra Kumar's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.


Latha: What is your sense of the way markets are headed, you think we have adequately discounted the pessimism from China and from other global factors? Are we putting a kind of a bottom at that 7,560 mark?


A: If you see we began this conversation a couple of weeks ago and how does the Indian markets react when there is a run on the rupee. Typically the correction lasted around 10-12 percent, I think that first price objective has been achieved closer to 7,500 and clearly the currency has depreciated but there is some overvaluation still to kill out there. But India has been holding up.


So my guess is that there is a crack, there is probably the one last leg, which is still pending at this given point of time and that is pretty much the bottom for the market from this given level. So we are reaching price points where we could start to look to accumulate the market if the market corrects from hereon.


In terms of the timing as well, you have the Fed rate hike or no hike, which is coming up next week and it may move either ways. So even per se would have been behind us and the market would look to digest that and move upwards from thereon.


Flows also we are optimistic, beyond this correction we will start to move up. Year-to-date we have been very low vis-a-vis other years. So yes, my limited point is that over the next 30 days we would see the bottom of the market from the market could start to look to recover.


Reema: The last crack on the Nifty will it take it below 7,550 which is what is held up until now and what would be extent of time correction? If we do see a rebound from those levels how soon could be move up?


A: What we have seen is that whenever these corrections are come they have been very sharp and quick and that is what we witnessed here as well now. So, typically the corrections are lasting anywhere between three to four days and as and when the correction starts it would get over there. That is pretty much the time that you would get to start to accumulate stocks. However, here there is one point that that I would like to add here is that on the rebound typically it is not the defensives which start moving as fast as some of the other stocks.


So, on the rebound it would be the beta stocks because they will be governed by stimulus say in Japan or China. So, we need to watch out for the oversold stocks. So, over the intermediate short-term it would be stocks that are out of favour that will look to rally.


Latha: Would you therefore say that midcap is the place to be in the rebound?


A: I think more than the midcaps, whenever the market has recovered, if you look at how Vedanta has behaved, how ICICI Bank has behaved or some of the other high beta names and that will give you a cue that there is lots of steam in terms of some of the largecap beta names as well who have corrected significantly.


For example, look at Tata Motors, which had corrected 50 percent from top of its peak and look at the way the rebound is coming, what is extremely oversold fundamentally strong and has a China stimulus angle out there as well. So I think that is where the short-term trade -- it is not a portfolio strategy in terms of when you are looking for outperformance or short-term trades that these are the areas where typically you look at. So if you look at high beta banks, probably potentially some select real estate names or Reliance Industries as well with the given newsflow in terms of Reliance Jio, so this is exactly where the short-term trades will lie before the market readjust to new realities.


Reema: What about portfolio addition if someone has a 12-months time horizon?


A: There is a very interesting story developing in the gas sector. If you look at the whole landscape gas, the nuclear reactors in Korea and Japan have restarted. There is ample supply of gas liquefied petroleum gas (LPG) globally and prices are going to remain very subdued. Demand is structurally up 10 percent from year-on-year (YoY) and the structural bottlenecks in terms of Dahej terminal as well as Kochi refinery for some of the gas players will be resolved over the next 12 months. Valuations are extremely attractive. So if you are looking at a beta trade where crude used to go up, you would probably look to book profits in Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) start to accumulate some of the gas stocks. So I think there is a very good pair trade at least for long-term structural portfolio holders to get it underway in this given point of time.


Latha: I wanted to ask you about this small bank license buzz, over the last 48 hours there is an expectation that the Reserve Bank of India (RBI) will announce it. My sources tell me it won't come this week but it has to come either next week or the week after, the potential listed candidates are SKS Microfinance, SE Investments, Repco Home Finance, Dewan Housing and IIFL, these are the more well-known listed people who have applied for this license, how would you play this theme?


A: If you look at what has happened with IDFC or other payment banks, there is no reaction. If you look at it, the capital requirements and their whole dynamics are extremely different. Some of the stocks like DHFL and others have already got rerated. After that, it will go into a prolonged consolidation phase. I think the bigger story out there is the consolidation in PSU banks and what the structuring which is Indradhanush and what the RBI governor is trying to do out there. So I think one needs to look at players which will probably consolidate into the larger public sector undertaking (PSU) banks. I think that is the next emerging story. We are trying to look at incumbents, which look to get acquired so that is the short-term trade, which one needs to identify and focus on.


Latha: What would you play then in the PSU banks?


A: Of course the larger banks one would typically own which is State Bank of India (SBI) and Bank of Baroda (BoB). We are trying to work and figure out which are the smaller banks that will likely get acquired over the next 12-18 months.


Latha: You will buy the target and sell the acquirer?


A: Yes. That would be a short-term pair trade.



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First Published on Sep 11, 2015 09:15 am
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