From the upcoming budget, he expects to know how the government is going to revive the current investment climate. He believes that if the road and infra are given a boost, it would bring a huge multiplier impact.
Dilip Bhat, Joint MD, Prabhudas Lilladher, is anticipating that the market will soon bounce back. Investors have been edgy over the last month with the smallest of negative news sparking a sell-off. The worries about the banking sector come from the bad loans that are being written off and from how the government plans to recapitalize the banks. But Bhat is optimistic that things would soon change.
From the upcoming budget, he expects to know how the government is going to revive the current investment climate. He believes that if the road and infra are given a boost, it would have a huge multiplier impact.
He suggests investing in L&T as the company's order book is robust. He also suggests investing in pharma companies like Lupin and Aurobindo. He also adds that mid cap should be avoided for now as they are difficult to exit if things go wrong.
Below is the transcript of Dilip Bhat’s interview with Nigel D’souza on CNBC-TV18.
Q: What is your take? There was talk that a couple of bad series always gives a rise to a good series. Do you believe in that phenomenon and the flows really not supporting us? The best in class have been selling off in the last few days.
A: I hope you are right and for the sake of everyone, I hope you are right. And even from the law of averages point of view, I think it should catch up. But, more important, people are not expecting anything great from the Budget as what we have seen, even the Railway Budget, the intent has been very good. We know the government is in the right direction, but performance always falls short of that. And, even in this Budget, the expectations are not very high, so the way the markets have sold off, the markets are ripe for some kind of a good bounce back.
Q: Let us hope that in fact, it is true, but if I just take a look at it, in the last couple of weeks, the stocks have not even participated in that 200 point rally. The HDFC twins, IndusInd Bank, Kotak Mahindra Bank, that clearly is a point of worry. When the best in class sell off, then where does an investor hide?
A: You are absolutely right. As what I was telling, we are in that phase at the moment, for quite some time, where the fear is overwhelming, overriding and everything else is relegated to the background. So, a little bad news and the sell off is very disproportionately huge. And a little bad rumour and the market reacts very, a knee-jerk reaction but that also is very disproportionate. So, this typically becomes one of those phases, where especially the banking sector, as what you have seen, the way there is a lot of talk about non-performing assets (NPA) being written-off and without any clarity as to how the government is going to recapitalise them. And if at all, they recapitalise well with the money left with the government to spend anywhere else. So, all those worries are very integrated and interlinked and I think that is what is causing kind of a blurred vision as to what is the way forward on this.
Q: I take your point in terms of the intent of the Railway Minister was good, but if the Finance Minister has good intent, but if there are lack of actions that will come through, then we could be staring at another downtick. So, what is your take on that front? What exactly are you looking for that could maybe turn the sentiment in this kind of market where we are seeing the foreign institutional investors (FII) selling. Yesterday’s highest gross sell figure we have seen in the last one month, highest net sell figure as well in more than a month. The FIIs, they are just getting out of here.
A: As far as the FIIs are concerned, they are more or less in an auto-sell kind of a mode at the moment. So, without looking at any of the fundamentals, or without looking, they are probably targeting still some of the most liquid stocks at the moment. I do not think that is really going to change in a hurry if the trend is any indicator at the moment. But coming back to the Budget, we all are looking for as to how this investment climate is going to be revived. How this investment can give a good multiplier impact. There are green shoots and there are quite a few areas where the sectors are doing well. You have the commercial vehicle (CV) cycle which has a tremendous multiplier impact. Then you have a road and infrastructure which if really increased in a big way can give a good multiplier impact. But, this Budget will need to really spell out the extra money that they are collecting, how they will try to revive the investment, the multiplier impact thereof and overall the sentiments.
Q: Do you think that LIC is holding onto its guns in case we go to that 6,500, then we will see more support coming in from LIC or do you think that participation has picked up in the last couple of days as it is?
A: They have always been a participant, so when you talk about domestic institutional investors (DII), it is basically LIC which really lends a huge support to the markets. So, they have a very twin responsibility of trying to participate in the disinvestment process as well as in the secondary market. Fortunately, they are really flush with funds on a longer term basis, and they have always been very smart investors at that. So, that is probably the bright point, but otherwise, the kind of mood is that nobody is really in a hurry to buy at the moment.
Q: What about midcaps? We have seen a sharp correction from the top. People are talking about exit midcaps and look at largecaps, but if you go to exit them, I do not think that there is that kind of liquidity or that kind of buyers as well that are willing to absorb this kind of selling. Midcaps, still more pain, or would you start nibbling into select midcaps?
A: Your observation is quite correct that first and foremost constraint is that there is no exit as far as the midcaps are concerned. And, I think midcaps have fallen quite a bit, but in the prevailing atmosphere, I do not think midcaps probably will find favour, maybe a very few on a very selective basis might really form amongst the top picks. But by and large, midcaps will be the space which people will not touch in a hurry, because the frontline stocks themselves have started looking like midcaps, and there are a lot of them. Probably at the valuations at which they are, it is better to focus on the frontlines, rather than the midcaps at this stage.
Q: Getting into this Budget, give us two stocks where investors can go and hide from the Nifty itself.
A: Larsen and Toubro, still is a good stock to really place the bet behind, because that has all the trappings of the good order booking, the good execution and a little support from the government, I think the execution will improve tremendously at the moment. And I would go something like one of the pharmaceutical names, maybe it is Lupin, or maybe it is Aurobindo Pharma, something like that.The Great Diwali Discount!
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First Published on Feb 26, 2016 11:21 am