India an ‘oasis‘ in volatile environment: Edelweiss Sec

There is yet no sense of panic among global investors towards India is the word coming in from Nischal Maheshwari, Head of Institutional Equities at Edelweiss Securities from the sidelines of their India Corporate Day Conference.According to him in spite of the global turmoil and volatility, investors are still optimistic on India’s future and the interest towards the country hasn’t diminished. India seems to be an oasis in a volatile environment, where there is much more calmness given the strong fundamentals.“There is no sense of despondency or going away from India,” says Maheshwari in an interview to CNBC-TV18.The market around 7700 levels is fairly priced although with the global volatility it could even go down to levels of 7500, which would in fact be a good level to start investing aggressively, believes Maheshwari. The market currently is giving opportunity to accumulate on dips, says Maheshwari, so start buying in smaller chunks.However, going forward from a 12-18 month perspective he expects a 12-15 percent upside for the market. From an investment perspective, his advice is to play through three themes, urban consumption, economic recovery and export theme; from urban consumption point the house is bullish on Zee Entertainment, Dish TV, Maruti. From an export theme, one could look at largecap IT stocks like Infosys, HCL Tech and Persistent Systems from midcaps.The economic recovery theme could be played through banks. He likes Axis Bank and ICICI Bank from the private space and SBI, Bank of Baroda from the public sector space.Pharma is also likely to do well but one must avoid having large exposures to emerging markets; companies like Cipla. However, US focused companies like IPCA Labs and Sun Pharma look good, says Maheshwari.The house has currently cut the year-end Index target to 10 percent from 15-16 percent and may cut further, says Maheshwari. However, since they expect recovery to come back in FY17, there are not cuts, he adds.Below is the transcript of Nischal Maheshwari’s interview with Sonia Shenoy and Anuj Singhal on CNBC-TV18. Sonia: The market has been on a downtrend clearly on the last many months, where do you think things are headed in the near-term and what is the mood among the clients that you have spoken to? A: We are having a fabulous day at the conference. We have around 8-9 corporates who are here and the response has been very good especially from the client side. I agree with you the market is hitting a new low and basically, there is a huge volatility across the world but I believe India is sort of an oasis where there is much more calmness given the strong fundamentals, so the interest is very high. Almost all large long-only funds are here at our conference meeting corporates. Anuj: You are meeting a large number of clients in London and you speak to a lot of long-only funds as well. What is the mood like towards emerging markets? Are global investors in a panic mode? A: I do not see any sense of panic among them. They are pretty comfortable. Rather they are looking to invest into newer stocks, newer companies. The kind of interest we have seen, I think part of our corporates are midcaps and there is a very good response to them. So, I do not see any sense of despondency or going away from India. Yes, the turmoil is there, but at the moment people are looking at this as an opportunity to go out and look at and invest into India rather than actually selling out. Sonia: A lot of midcaps have also corrected sharply. What are you advising your clients to buy at the current levels? A: I think there are three themes which we have been playing very clearly. One is the urban consumption which is coming up pretty well. So, we have been advising clients to look at stocks Zee, DishTV, Wonderla and some of the auto pack stocks like Maruti. These are some of the stocks which we have been pushing them to look at. The other stocks which we believe are doing well is the export theme and there we are asking the clients to play through the IT. Our top pick remains Infosys followed by HCL Tech, and in the midcap it is Persistent. The third theme which we are sayin i that of economic recovery and we are asking them to play through some banks. That is the way we are asking clients to actually look at the current market.

Anuj: You spoke about IT stocks, but we have seen some bit of correction in IT as well. But, pharmaceuticals barring a couple of stocks is still holding on and resisting touching previous lows. What are your top picks in this particular space? A: Pharma also should be a beneficiary. There is no doubt about that. the only thing we should avoid is companies which have got large exposures onto emerging markets. Companies like Cipla etc which have got 60 percent of export to emerging markets because the turmoil there will continue due to currency. So, wherever you see a US focused company, there the growth should be much stronger, and the benefit of the currency should come through. So, in the largecap we like Sun Pharmaceuticals very clearly. And in the midcap we like IPCA Laboratories. These are our two companies which we like very much. Sonia: Since you broadly spoke about the fact that the economic recovery theme is continuing, the GDP growth though is not indicating a recovery just yet and the government spending also is on the lower side. So, within the macros which sectors should one look at to play this recovery theme as and when it comes about? A: The government expenditure numbers have been pretty strong. So we are telling people that the government expenditure theme should be played within the recovery cycle. One can play that through the construction sector through the asset creators and not the asset owners. There our top pick remains to be J Kumar Infrastructure and KNR Construction. These are the two companies where we have been pushing for investors to play in this theme. Anuj: What about banking, that is the sector which has been out of shape whether it is (Public Sector Units) PSU banks or even private banks, we have seen private banks actually now getting into a bit of a bear zone for stocks like ICICI Bank and HDFC Bank. What is your view on some of these names? A: In this current scenario, if the economic recovery does come through, we should play through a mix of PSU and the private sector banks and the stocks there we like in the private sector is Axis Bank and followed by ICICI and on the PSU side we like SBI and Bank of Baroda. Sonia: A lot of brokerages have been cutting their targets on the Nifty and the Sensex. Is Edelweiss also looking to revise their targets any time soon? A: We have cut our current year growth target from around 15-16 percent to around 10 percent but I believe that should end somewhere around 6-7 percent, so further cuts will happen as far as FY16 is concerned. However, FY17 we are all hoping and believing that the recovery is going to come in, so I don’t see any cuts happening at the moment on FY17. Maybe the absolute numbers will cut down because your FY16 numbers will be down but as a percentage growth we are still holding onto around 14-15 percent growth in FY17. Anuj: So does the market look optically cheap based on lower expectations? A: Optically, at around 7700 levels the market is fairly priced. Along with the international volatility, it may go down towards 7500 number but all dips should be used to actually accumulate in India. My view remains that given the volatility is going to be there for at least a quarter or two, one should be looking to buy in smaller chunks rather than coming and investing at one go. So, it is time to accumulate at these levels. Sonia: You spoke about the 7500 levels, do you think that could be the flaw of the market in the near-term or is there a potential of further downside as well? A: I am only looking from a valuation perspective, I don’t know technically how the market will go, and in times of panic we have seen market behave irrationally on both the sides. So it may go down to to even 7200-7100 but 7500 is a good enough level basically to go out and invest aggressively in the market. Anuj: Given the way the earnings and the way the global environment is, what kind of upside do you see in the next 12-18 months? A: Anywhere between 12-15 percent upside.