In wait & watch mode; prefer pvt banks, NBFCs: Dipan Mehta

Dipan Mehta, Member, BSE & NSE in an interview to CNBC-TV18 says if this trend in the midcap and smallcap rally continues then investors and traders would start to find value in the largecaps too.He expects the market to witness lot of volatility around the earnings season and so would prefer to be in a wait and watch mode till the end of it. Earnings according to him would be a reality check for the market and in case the reported numbers do not meet expectations then stocks are likely to come under pressure. According to him the market is currently witnessing fresh liquidity flows from retail investors, high networth individuals (HNIs) and foreign inflows. Sector specific, he sees incremental money into sectors that were favourable in the last fiscal  like pharma, FMCG, consumer space etc on back of  expected recovery in economy and pick up in capex. However, he is extremly negative on the oil and gas space currently.He is more upbeat on the private banking and NBFC space over the PSU banks with exception of the State Bank of India. According to him people are still overweight on pharma but the sector could disappoint in terms of earnings. So ,he is a bit cautious on pharma and would wait for further clarity from earnings.IT space he thinks could rally post earnings because they seem to have done a good job of managing investor expectations. He would not take positions in them before earnings are out. However, for people with a long-term view, the secular trend for the next 3-5 year is good and one could look at getting into bluechip IT names, says Mehta.

Below is the transcript of Dipan Mehta’s interview with Anuj Singhal and Latha Venkatesh on CNBC-TV18.Anuj: First a word on the broader market, we have seen big gains in midcaps and smallcaps while the Nifty and Sensex seem to be consolidating. Do you Would you expect that to continue? A: If this trend of midcap and smallcap rally continues then eventually investors and traders will find that there is value in largecap as well and those stocks will also start rallying. We have seen this pattern about money and trading positions shifting from large midcap to largecaps and then back again to midcaps; that cycle continues. However, we have a very important earnings season around the corner and that will be the reality check for this market because if the numbers don’t meet up to street expectations and when on a trading 12 months basis or whatever the forecast is for the current year, if the valuations look a bit stretched then that is certainly going to put some pressure on stock prices. However, what we are seeing underway is again fresh liquidity flows coming into the market. March typically was tight for liquidity and now that we have been over and done with that month, we are seeing fresh flows from retail investors, HNIs, to an extent mutual funds as well as foreign portfolio investors (FPIs). Most of them are pouring in and increasing their exposure to equity. If you see the list of the gainers, they are all typically the quality stocks where expectations are at least that these companies will be able to deliver in the upcoming earnings season.Latha: How are you placed on the oil and gas space itself? Gas Authority of India (GAIL) is the biggest loser today, 3.2 percent down, a Credit Suisse downgrade.A: Our view is extremely negative on the oil and gas sector. We and our clients have virtually zero investments in any of the oil marketing, processing or refining companies. Anything to do with energy whether it is oil or power is a complete no-no at this point of time given that hardly any reforms have taken place within that sector. In stead we find better opportunities, better value outside other sectors where there is far too much government interference and there is volatility as far as earnings because of end product prices are concerned. So, there is enough choice elsewhere.Latha: What would you put incremental money in? A: Right now it is better to be in a wait and watch mode. Typically, around the earnings season there is a high degree of volatility in individual stocks just before the earnings. So, just a wait and watch. A more informed decision post the release of earnings would be the best strategy going forward.

for his sector/stock specific views watch video