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Last Updated : Dec 15, 2016 06:13 PM IST | Source: CNBC-TV18

IT, pharma safe bets; valuations are high: Market expert

Speaking to CNBC-TV18, market expert Anand Tandon said, even as the market is below the 8,000 mark, it is still not a screaming buy as the valuations are high.


The US Federal Reserve raised interest rates by a quarter point and signaled hikes could come next year at a faster pace than some expected. The market opened lower tracking global markets reacting to Federal Reserve's interest rate.

Speaking to CNBC-TV18, market expert Anand Tandon said, even as the market is below the 8,000 mark, it is still not a screaming buy as valuations are high.

The pockets where money can be put in are IT, pharma and also speacility chemicals. Also, in the domestic market, there is traction where government is spending and the sectors may not see a major cut, said Tandon.

He also bets on Infosys and Reliance. For Infosys, he believes that with the US interest rates going up, the banks will start performing better and that will also help the IT sector.

As for Reliance Industries, he says that it has been a gross underperformer and till Reliance Jio money starts coming in not much can be said.

But, taking a rotational call he said, both Mukesh Ambani group and Anil Ambani group are showing signs of life. This can be attributed to the efforts the groups are making to improve their balance sheets and also they are underpriced.

Below is the verbatim transcript of Anand Tandon’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy.

Anuj: Do you think if we have a knee jerk and this market goes below 8,000 again, it would be a screaming buy?


A: Not really a screaming buy because the valuations for the companies that you want to buy are still very high and those you don't want to buy you don't want to buy for very good reasons. So, by and large the market still has valuation issue but in the same time we will certainly get opportunities and to the extent almost half the earnings of the domestic companies comes from overseas. We have a natural hedge there. So, I don't think there will be a big crack only because of only the US Fed, there may be a crack because as I said the fact that the market internally is expensive vis-à-vis the kind of growth that we are likely to see.


Latha: What are the pockets where you will look for buys in the event of a cut? At the moment the cut is not looking severe. It is looking like 60-70 points.

Close

A: Obviously anything which has got export earnings to my mind is the place you have to be in and that includes the usual suspects like pharma and IT but also speciality chemicals, textiles, some of the auto ancillaries which have export orders and so on. Besides the only other area domestically where I can see that some traction could be is where the government is spending money and continues to and the likelihood is before the Budget or even in the Budget you are likely to see a much larger spend coming from the government, at least that is the hope. So, if that were to fructify and there is a very high probability it will then at least the government lead expenditure is something that you will not see a major cut back in perhaps a huge increase in and that can drive at least for a certain set of companies that can drive demand and therefore earnings.


Sonia: I wanted to come to you on two heavyweights that have made good attempt to support this market, Reliance and Infosys, any thoughts on whether one should put more money here or back these stocks?


A: The IT sector is probably the cheapest and it has been in a long time. So, if you have to actually look at dollar based companies IT sector is the logical place to be. Obviously the midcaps will perhaps do a little better and some of them are more differentiated business models, but broadly if US interest rates go up one expects that the financial markets in the US, the banks and so on will actually start doing better because one of the problems they have is with a zero interest scenario they can't earn money. So, with some positive interest rate they should start doing better and that obviously helps the IT sector overall. So, I would imagine that the IT scenario will improve as time goes by.


As far as Reliance Industries is concerned, it has been a gross underperformer and till the Jio money doesn't start to come in and they start charging it will be difficult to take an economic call but from a rotational perspective it is not only Mukesh Ambani group but the Anil Ambani group is also showing signs of life and you could perhaps attribute it to the fact - one, they are trying to improve their balance sheet and two, they are grossly underpriced and under owned. So, from both those factors the Reliance groups as it were are perhaps plays which will outperform the market if not necessarily may give great returns from here.

For entire interview, watch accompanying video.

(Disclosure: RIL, which owns Reliance Jio, also owns Network18 and moneycontrol.com).



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First Published on Dec 15, 2016 10:34 am
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