Mid, smallcaps worrying; 7200 strong support for Nifty: PL

The stock market is witnessing mayhem because of global turmoil and over-buying in midcaps and smallcaps, says Amisha Vora of Prabhudas Lilladher. In an interview to CNBC-TV18, Vora says midcaps will further see some more correction and slow recovery.However, she sees 7200 as a strong support level for the Nifty. On HDFC Bank, she says its market capitalisation is now equal to the entire PSU banks market capitalisation. In her stock picks, Vora is bullish on Maruti, HUL and Infosys. Below is the verbatim transcript of Amisha Vora’s interview with Nigel D’Souza, Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Nigel: This morning there was a lot of fears that maybe we wake up on Monday morning and those margin call fears come back into the system. We see a lot of selling pressure, midcaps and smallcaps, they seems to be replicating that? A: I think so because particularly midcap, smallcap if you remember, just sometime back two headlines all the media was showing that some 300 scrips have hit 20 percent upper circuit and probably so many scrips are at 52 week high. So, they were in complete disconnect with what was happening a) globally and b) in the broader markets, rather in the Nifty stocks. So, I think a bit of over buying, overeating, now that indigestion is showing in the systems it seems. Q: What about the cleansing process, do you expect us to continue – we have already seen a cut of around 7-10 percent in the last week itself, smallcap and midcap, how much more low can we go? Do you think it is going to be a couple of days or do you think it is going to be a couple of weeks that we are going to see this kind of selling pressure? A: Aggressive selling pressure may be for couple of days or may be few more of them but beyond that the recovery will be pretty slower; that is what I feel. Probably the recovery will not be a very sharp recovery and now people after having seen, particularly retail, this kind of losses in their books, will take time to bounce back. Q: Let us talk about the headline index then. Today we are around that 7,400 mark. I remember post the election verdict, we were at these particular levels. Where exactly does Nifty make a base? Is it at the 13 times, is it at 14 times, I think we are currently moving at roughly around 14.5-15 times so do you think 6,900-7,000, what is the base for the Nifty? A: To me it appears that 7,200 levels could be a very strong support. We also believe that a lot of global factors are definitely pointing at emerging market selling, emerging market growth completely slowing down, maybe impacting global markets, global market bonds having some issues because of the oil and commodity bonds within that and so on and so forth, but, there is no catastrophic event which is actually happened. We are all fearing something might just happen.So, I believe that 7,200 which is where we would be somewhere closer to. As per Bloomberg projections 14 times 2017 earnings could prove to be a reasonably good support. Even if it slips below that, I feel that probably it will bounce back to these levels pretty soon; in case in any major jolts, something like that happens, but otherwise I think 7,200 should prove to be a very good support.Nigel: How big a factor has LIC been in these last few days? Do you think they are coming out and they are saving this market, do you think they have to do more?A: Right now, yes, LIC has been lending support. However, probably I think their support is mediocre; it is not a very aggressive support. Probably something is being held back so that in case required, may come. However, apart from that, I believe that up till now the rest of the mutual funds have been pretty fortunate to continuously have those SIP inflows which has been helping and it will be very interesting to see how inflows are behaving over next two months. Nigel: What about the Bank Nifty, at one point of time you would say that ICICI Bank at Rs 220, mouthwatering, maybe an State Bank of India at Rs 190 odd. The Bank Nifty seems to be seeing the intense selling pressure. At what kind of levels do you think that becomes attractive and would you go in for those private sector banks which have relatively done better; I am talking about HDFCs of the world, not an ICICI Bank and what about PSU banks, I remember 0.3, 0.4 times, people say mouthwatering. What is your take? A: I agree, now the latest statistics show that HDFC Bank’s market cap is equal to entire PSU packs market cap, all top 16 PSU packs market cap. So, yes, it is extremely pathetic situation, there is no doubt about it. It may probably send a few alarming signals as to how tackle this situation and are there better ways to tackle this situation even to government circles, I would believe because even if they want that they want to recapitalise it, if they recapitalise it at these rates PSU banks, they are gone forever because the book value will just get impacted very badly. So, there will be like I believe SEBs are restructured, PSU bank capital restructuring, something more needs to come apart from the provisioning part whatever Reserve Bank of India (RBI) kept on doing, giving 5:25 scheme, giving other scheme but for recapitalisation there has to be very innovative way of recapitalising PSU banks i.e. number one. I also feel that yes there is good amount of provisioning which will come in this and next quarter as Governor Rajan really feels that let us come out clean so that at least the fear factor from investors reduces. Even if their numbers come, to a great extent at these prices I do feel that markets have started anticipating and pricing it in. So, maybe some more broader policy announcements will be more useful to change trend here apart from of course whatever happens because of FII selling because this has been the largest weightage in the Nifty.Latha: I agree that we are all looking at whether the SIPs will be rolled back by the small investor and that will create problems for the domestic institutional investors (DIIs) who have been the bulwark of the market. However, what about the high networth individuals (HNIs)? Are you getting regular phone calls from HNIs telling you to book profit or to even go short? A: I think large part of HNI, minimum number of individuals (MNI) category clients, typically don’t go so much into mutual funds but being HNI they feel they can act to the market smarter. The way midcaps, smallcaps have reacted in last one week to 10 days, suddenly when you lose 20-25 percent, the ability to book profit reduces substantially and then you just manage the book in the sense which one you should sell to protect which position, I think they are more probably in that situation.Sonia: Nigel was discussing some of these banks and how they have reached very attractive levels. I have a similar question but with regards to some of the other heavyweights. There are names like Larsen and Toubro (L&T) that has corrected almost 20-30 percent this year, so many stocks from the pharmaceutical space like Dr Reddys have hit fresh lows, if you had to identify four or five largecap stocks that one should keep ready in their shopping basket, what would it be? A: I would say that some of the stocks are at 52 week low and continuously heading lower. Will that be the first to bounce back? Probably not. So, if you say yes from a very long-term investment perspective which are the stocks, then some of these stocks and names may appear. However, first which will be the stocks to bounce back, then I don’t think these 52 week lows kind of stocks could be in the first shopping list. So, I would still probably go by slightly safer bets which could be Infosys which we have been bullish for a while. I think with the delivery of results, the confidence overall continuously increases. The second could still be, despite the yen issues and a little bit of cost pressure Maruti Suzuki and the domestic consumption guy and further if you want to go then it could be Hindustan UniLever. So, probably the order will be something like this.