Hope rally if new govt is stable; buy midcaps now: Quantum

Below is the verbatim transcript of his interview on CNBC-TV18

Q: This market has exhibited some signs of weakness and the Bank Nifty is the sure short indication of that. How are you approaching the weeks to come from here?

A: As you pointed out it is not looking good because there are too many loose ends that market participants are grappling with both the short-term traders as well as long-term investors - whether its the fear on the rupee dollar front because of political uncertainty, whether its got to do with problems related to the bank s and also there isn’t any clear indication that there is an uptick in growth for the industrial cycle.

A combination of these is getting people nervous and the only thing you are seeing moving at this point of time is technology, but one sector or few stocks cannot only hold up the market for too long.

Q: That is my follow-up question because the market has become a bit bipolar in nature, you had IT and pharmaceuticals do well, you had stocks like Larsen and Toubro (L&T), Tata Steel, all these stocks collapse this week. Do you think it is almost a deja vu kind of situation that may play out, IT and pharma doing well, some of the other sectors not doing well and overall the market in a larger term still remaining flat?

A: There also I have a worry because the IT and pharma is tuning out to be a crowded and a very obvious trade and anything that is obvious and no-brainer doesn’t play out for too long. It is just a matter of time where someone will prick that bubble there also. Although I am not suggesting that IT or pharma are bubble; it is just an analogy I am assuming.

However, the point is that everyone cannot be hiding in safe havens of IT and pharma beyond a point there is going to be one large player or few large players who are going to come and sell those stocks and that is where the possibility of the index cracking back to 6,000 or sub 6,000 will start to show up because I cannot figure out a sector that will be able to stand out as things look today until something happens in next week-ten days.

Q: What did you make of Infosys and more importantly the management commentary?

A: I do not want to look at the quarter behind or what has happened in the past.  NRN Murthy’s comments were encouraging. One has to look at things ahead now. There has been a tremendous shakeup in the company in the last few quarters, lot of developments. One is happy that NRN Murthy is back and is in charge again, a rare occasion when a promoter who has left the company or senior management who left the company has come back. He has been a stellar example of corporate governance and responsibility to the shareholders. He has taken upon him again to set right things what most of us felt had gone wrong. That is what makes me feel positive about the stock.

Would I buy the stock today at this price? No I wouldn’t. I would wait for an appropriate time, for a correction but if I have to have IT exposure, this would be my top pick given what I heard from NRN Murthy and also the fact that I am sincerely expecting and I think it will happen is that the dollar-rupee equation once again turning adverse and the rupee coming to the 64-65/USD range for a while at least and if that be the case then Infosys would be the best pick at this point of time whenever correction happens.

Q: If this is a bull market correction as most people assume it to be, what you would be buying now because as history has taught us the man who made money is the one who found opportunity in adversity. What would you buy if you had to at this point in time?

A: From a very short-term perspective, I would look to buy stocks that are there in the – once again where things have moved up in the last month or two – that’s midcap and smallcaps, where things look attractive. We are seeing a large number of fund managers starting again after a very long gap of few years or months to visit some of these second tier companies and in fact even much smaller companies and trying to look at things there because the valuation gap had gone up too much and even now it still remains that way.

So, my broad view is that the short-term as well as 2014 does look better for the small and midcaps but for my index perspective I still question whether we are in a bull market because there are lot of worries on the political front post state election situation in no better, we cannot find any government or any decisive leadership coming out on the political front and if that be the case then where would decisions lie and what decisions would be taken by the government. So, focus would again be bottom up, individual stocks, individual companies who would perform in adversities, companies with no debt or manageable debt. That is where it’s all going to be. So, we are stuck with just these three-four conditions that we must comply before we put money into any company.

Q: Do you think with the Aam Aadmi Party (AAP) coming into fray and with the kind of momentum that they have taken there is a genuine risk of a hung-parliament and in that case a political risk coming back to the market which hasn’t been priced in yet?

A: I am as clueless about which party and what combinations pan out or what are looking right now. However, my assessment is that irrespective of that if the market sees signs in the next few weeks or months that there are clear indicators that we will have a stable government formation happening whether it is BJP led, Congrees led, AAP led etc but market wants a stable formation coming in place by June-July this  year.

If the stable formation is in place then some of the difficult decisions that  need to be taken, some of the legislations that need to be  handled, bills which have been long pending need to be cleared would be passed. Confidence will return for international investors to start putting in money and I am not talking of FIIs but of serious FDI money because long-term sustainability in market, in economy’s growth comes back or comes in only with large FDI money – strategic deals should happen. So, serious and long-term money should start coming into and stablilise the currency as well. That can only happen if the country gets one stable regime for five years.

Therefore, once the market starts to sense that then the expectation rally would start building up, which would culminate with a clear political mandate which one will know only after elections are out.