From a 6-12 months basis, things are looking a lot better, especially based on domestic factors, says independent market expert Ratnesh Kumar. However, he says global cues continue to remain challenging. According to him, economic revival is in the offing and hence betting on economy-heavy sectors over the next 1-2 years makes sense. Based on that, he is bullish on banks, capital goods and construction, among others.
He continues to remain positive on the IT sector, but says pharma as a whole is valuation-wise expensive. He is underweight on the auto-ancillary space and believes it is perhaps done with its best phase.
As far as the midcap space goes, he says it already had a good run. "So the entire space is not inexpensive or at a lower valuation," he told CNBC-TV18. He expects large caps to lead the break-out in the Nifty.
Below is the transcript of Ratnesh Kumar's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: What is it looking like, 7,500 definitely before 8,500?
A: Short-term will be hard to predict but I think things are looking better, more positive. If you recall last three-six months, we have been talking about the fact that in next three-six months it is unlikely for the market to breakout because there are a lot of challenges and I think we are towards end period of that phase. If I look at a six-twelve months basis, things are definitely looking better both in terms of domestic factors -- obviously the global factors remain challenging. However, all put together, I would think next six-twelve months would be a better phase for the market than the last six months.
Sonia: We will talk about some of the big themes this morning, one of them is in the IT space where HCL Technologies has given that revenue warning, the stock is down 10 percent but as an investor in the stock, how do you approach it?
A: I would not be able to comment on any individual companies but if you look at it, IT space generally is in good shape. There could be company specific factors, one of like because if you look at the broader IT space, it is doing reasonably okay even today. So in the context of the overall market where you are seeing earnings downgraded, you will still have IT delivering above average returns. So for a company specific issue, I would not step away from IT space as such right now and that should remain one of the preferred sectors in the market.
Latha: What would your weighting be, would it be towards economy exposed stocks, banks, autos, real estate or would it be rather the defensives?
A: Not the defensives. If I have a long-term view, which as an equity investor I should have a long-term view, now the time has come to play the next one-two years of -- I am sure -- not without challenges but there will be revival in the economy, there will be revival in capex and so the economy is sensitive or economy heavy sectors would be my preferred overweights on one-two year basis.
Latha: State Bank of India (SBI), Larsen and Toubro (L&T) types would be the plays to go?
A: So banks, capital goods, construction companies typically are there and of course you have the short-term challenges that if the rate cut has happened and in the short-term there could be certain amount of margin compression for banks but if you are looking at the main issue for banks right now is a growth and the asset quality. So if the economy improves then clearly the growth should come back and on asset quality also there should be some relief.
Sonia: One more theme that played out yesterday was many of these city gas distributors that started rallying after the domestic gas prices were reduced by about 18 percent, now at about USD 3.8 per mmbtu. Is this a space that you think can give good returns to investors, the Indraprastha Gas Ltd (IGL) or even some of the other stocks like Gujarat Gas?
A: I look at this space more as an utility. So it is a good space for steady growth in the companies and hence steady returns from their stocks. So that is how I would look at it and that can be part of the portfolio as a portion which is not so much economy sensitive, not so much global market sensitive or global factor sensitive and independently and clearly, if they get lower input prices that can help the demand and sustain that steady growth that they can deliver.
Latha: Would this be a time to bet on midcaps rather than the large boys, if you are looking at the economy turnaround then valuations are still better at midcaps?
A: Midcaps have had a good rally. So incidentally it is not so that the midcaps as a whole category are at a low valuation than largecaps. So what I am looking at is in the initial phase of economy and the market recovery quite likely that you will have largecap lead the market from the current rangebound situation which we have seen from the last six-eight months which is 7,500-8,500, possibly the largecaps will lead the market out of this range and then midcaps will obviously follow.As a strategy, midcaps obviously remains good for long-term which is that you will get above average growth and fairly good returns from midcaps as a category within which then it comes to individual stock selections.For full discussion, watch accompanying videos...
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