Market to take cues from BoJ meet; like agri, pvt banks:Ambit

If investors can live with the beta (high volatility) nature of midcaps, then she can expect greater returns in the long-term, says Sanghavi. He is upbeat on private banks and select NBFCs.

Below is the verbatim transcript of Vaibhav Sanghavi’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: There is this rally which came out of nowhere, has it got legs? A: Just to take into perspective, it has been a phenomenal two month performance of the market and now we are for the year-to-date (YTD) 1.3 percent up already. This move has got everybody by a little surprise. So, going forward whether this rally has legs or not, there are quite a few monetary bills which one has to look at before deciding onto what will happen probably. One is today Bank of Japan (BoJ) and FOMC meet this week which will determine the course of the performance of dollar, yen and euro. At the same time, the incremental steps which are coming from China. China, if you see the data in March, it has been very good in terms of trade date or probably whatever the economic data has been and that has fueled the global market rally. However, what is worrying is basically, largest amount of account openings again in commodity space where commodity speculation has already begun on a large scale at least in China. So, there are again some kind of asset bubbles probably happening on those kind of sprint so do have a look at all those variables. In the medium-term, I think this momentum may continue; it is anybody’s guess actually. Sonia: You are advising retail investors to continue buying into this market? A: As I say, it is a very tricky market. The number of variables at this point in time do support that momentum however any further worries from the global front would stop probably this rally. I don’t know whether retail investor will be able to cope up with those kind of variables which may emanate from the global scene. Latha: How did you look at the Axis Bank numbers and therefore the entire banking stock; that one has rallied harder than the Nifty? A: The whole banking space has rallied very hard in last one and half to two months in anticipation that larger part of the problem is out and larger part of the disclosures have been through so that people start looking at the price to book rather than price to adjusted book and there is much more transparency in what you are probably going and investing into, So, in that sense, it is pretty okay. Incrementally government and Reserve Bank of India (RBI) both on a combined basis have been taking positive steps on the sector for the longer term basis. However, if you ask me whether the pain has been over as of yet? No, I don’t think so. I think it will sustain for couple of quarters more. Having said that these stocks have rallied a bit, I think it will be time for them to cool off a little bit and switch to quality again. Latha: Switch to quality within banks? A: Within banks also. Sonia: The other good set of numbers that we had was from some of the auto stocks like Maruti Suzuki. That just tells you that the consumption trend is picking up, is that a theme that you would play now? A: Absolutely and we are pretty much overweight on the whole consumption theme including consumer discretionary. Though we have shifted from four wheelers to two wheelers and that has been our stance for last couple of quarters, we are also bullish on consumer durables and we are also bullish on anything to do with the rural segment including farm equipment, agro chemicals. Latha: Would you say that midcaps are the place to be in?A: Midcaps by nature are little bit of high beta and they are not caught up as yet. If you see the longer term story of India, I think they are pretty much on a growth path. So if an investor probably for a longer term basis is willing to live with the volatility and the beta nature of the whole segment, I think midcaps will offer on a longer term perspective better returns, no doubt about it. So, it is just a matter of time horizon where you are looking for.Latha: I wanted to ask you, yesterday the Call writers actually got wiped out because that rally came out of nowhere. So, for the immediate term, this contract itself, do you think that higher side is more likely? A: The maximum open interest I think is around 8,000 levels currently and it will be tough for the market to cross 8,000 and if it crosses 8,000 you will see some amount of delta buying happening by sheer amount of Call which have been written on 8,000. The expiry should be relatively strong. I don’t think it has much of a downside from 7,800 to be very honest. Latha: So this contract is safe?A: This contract is looking safe. Sonia: You told us about a couple of themes that you are looking at now. One of them is the consumption theme in sectors like autos. Anything else that you are playing that you would be advising investors to buy into, maybe something like IT? A: IT is pretty much at the bottom up story for us in the sense that we are continuously saying that it will be business which you would want to buy which has a differentiated offering and high value added offering rather than the commoditised business which generally is currently in terms of IT space. The IT space in terms of the PE multiples and the growth which we are seeing, will offer some amount of bottom up stock picking rather than having each and every stock in the basket of IT. So, we are pretty selective in IT at present. Latha: So you are top-down only in consumption stocks? A: Yes, consumption as I said led by again consumer discretionary, paints, consumer durables and two wheelers. Latha: No finance stocks?A: Finance yes, private banks and select non-banking financial companies (NBFCs). Latha: What about in the Biocon, Syngene numbers, Biocon in particular looked good? A: It is a pretty niche story and with a good option value actually on to the stock. We don’t think that the valuations are very expensive so it has legs to go, both Biocon and Syngene.