New high likely in few days; buy IT, auto, PNB: Anand Rathi

Even though the Sensex shied away from touching all-time high levels, there is a good chance of an overshoot on the upside in the next few days, believes Sandeep Shenoy, Anand Rathi Financial Services.

However, if all-time high levels are not taken out before the end of the earnings season then the peak will not be attained, warned Shenoy. He advises long-term investors to sell into the rally whenever it happens as they can reenter the market 3-5 percent lower. Post earnigns, he does not see any other trigger for the market.

As of now, at Anand Rathi, they have IT and auto space at the top-end of the pecking order because the scalability and predictability in IT will remain unimpaired for a long time.

On banking front, although 4-5 private banks carry maximum weightage in the Bank Nifty, banks like Punjab National Bank (PNB) may claw back in the near-term, feels Shenoy.

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Below is the verbatim transcript of his interview on CNBC-TV18

Q: We shied away from that all time high on the Sensex but do you think there is still a lot of resilience fueled by way of FII money?

A: There is a good chance that there could be an overshoot on the upside and all time high could be breached in the next few days. However, if it doesn’t happen before the result season coming to an end then I don't think it is going to happen.

Market is poised quite interestingly at present, because in the beginning of this season, there was despondency and people were more or less pessimistic on the earnings front. But as the earnings season is progressing, we are now starting to see minor tweaking up of index EPS. So, that probably could be giving some kind of support to the markets in the shorter term.

Once the result season ends, I don't think there is going to be any more trigger. So time correction has to be there and indexes and the markets have to undergo some kind of a time correction which would last for at least two-three months.

So if you have an overshoot then long-term investors should try to sell into that because you will definitely get a chance to enter into the markets at least 3-5 percent lower.

Q: Would you go with any of the public sector banks at least as a trading strategy because we are seeing the Bank Nifty doing reasonably well and in the past 48 hours it has been led by the public sector banks?

A: We have always maintained that the differential in valuations between PSU banks which are at the lower end of the spectrum and private sector banks which are at stratospheric end of the spectrum, has to have some kind of convergence.

PSU banks do have some kind of problems but they are not in the dog house as the prices convey. Somewhere or the other once results  pan out then the degree of differentiation in the NPAs or slippages is not going to be five times between these two ends of the spectrum, so convergence will happen.

So right now, although four-five private sector banks carry the maximum weightage in Bank Nifty and hence on Nifty but PSU banks, especially the larger ones like Punjab National Bank are showing the way as to how they can claw back.

Q: Up until now we had some good numbers coming in – so if you had to recommend some stocks now in broader market – what would they be?

A: There has been some kind of sectoral leadership rotation, so now it could be IT followed by auto, healthcare, FMCG, then followed by banking. That would more or less be the pecking order

For IT, although the valuations look extremely stretched, the scalability and predictability of this industry will continue to remain unimpaired for long period of time.

Auto has moved up from lower end of the pecking order.

Therefore, one can keep IT and auto at the top-end of the pecking order and one will not be a looser.