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Last Updated : Jan 31, 2014 09:01 PM IST | Source: CNBC-TV18

'Politics, taper, infra woes key issues; pick IT midcaps'

On the IT sector, however, Sanjay Sinha of Citrus Advisors, is more bullish on the madcap names like MindTree and Persistent Systems.

The Indian equity market will be confronted by three major issues the whole of 2014- politics, Quantitative Easing taper concerns and the situation in infrastructure sector, says Sanjay Sinha, founder, Citrus Advisors.

Speaking to CNBC-TV18’s Latha Venkatesh & Anuj Singhal, Sinha says that irrespective of whatever happens in the aforementioned parameters, IT and pharma are likely to outperform this year.

Also read: India will remain one of favourites among EMs: JP Morgan

On the IT sector, however, Sinha is more bullish on the madcap names like MindTree and Persistent Systems.


“This is because not only do they have good momentum in their earnings, they also have good corporate governance to give you that comfort,” he adds.

Below is the edited transcript of the interview.

Anuj: What is your call on the market now after the kind of volatility that we saw in the latter part of the January series?

A: There will be three major issues which the market will have to confront with in most parts of 2014. The first of course would be the political outcome, second is the taper and third is if something is going to happen on the infrastructure sector or not.

What we have seen in the month of January till now, has been trailer of these three issues. If you recall, early part of January started with certain amount of misgivings in the market with the rising emergence of the Aam Aadmi Party (AAP) and what it would do to the national political scene in terms of making the contest triangular from a bipolar contest that was taken for.

The market was pulled up from this stupor that it was slipping into, largely thanks to the extraordinary results from Infosys.

The second factor which the market has been dealing with in the last one week is that finally the impact of US taper on the emerging markets’ economies, currencies etc, I do not think the cut by another USD 10 billion is going to be the last of the US taper. We might have some more of that to come and given the fact that our markets have largely been dependent on the foreign portfolio flows; the consequent impact on our market of these flows either reducing or becoming negative is surely a worrisome issue for the market.

The last issue is the issue of infrastructure, which is closely related to what is happening on the inflation, interest rate front. If one goes by the policy of the government; they have done quite a lot in terms of creating a huge demand in the rural sector, but we have not done anything in terms of improving the supply bottlenecks that India is confronted and the slowdown and the halt of infrastructure has brought us to this situation. Whichever government is coming into power, I think something needs to get moving on the infrastructure side.

Latha: Do you notice anything spectacular in any of the stocks' numbers that would convert you into a buy? Voltas came with better than expected numbers yesterday. Huge improvement in margins, much better than what the street was expecting. Arvind Mills posted a 26 percent rise in its revenues. They have been doing 20 percent at best for so long now, the 20 percent, even Sanjay Lalbhai thought was a bonus. Any of the stocks that had eye popping numbers you thought?

A: We should not extrapolate the performances of a quarter into an enduring performance from these companies. Most of the companies which are in these large cap engineering sector, like for example Voltas, the margin improvement in a particular quarter could also be because of a number of factors.

Also read: Aim to beat guidance; capex benefit seen in Q3: Arvind

It need not be necessarily because there has been a structural improvement in the company. So, I would not give too much of heed to that.

What is more important is that is there some trend which has emerged in the market which we can pick up. One thing is for sure that whatever we saw in terms of the performance of the IT sector in the last calendar year has at least got reinforced by the quarterly performances of January.

In my opinion, this is going to be one of the outperforming sectors for 2014 and the 2013 rally in the IT sector has been led largely by the large caps. I think the midcaps have still a far long way to go. I think we can play those stocks from this sector here.

The second trend I can pick it up and it is not necessarily related to individual company performances alone is what has happened to the pharma sector. Barring the accident which Ranbaxy and Wockhardt have had to face, by and large the number of stocks in the pharma sector which were outperforming in 2013 were far more.

Even though the index itself gave a 22 percent return, the individual companies still have lot more room to play. So, playing the pharma sector through a bouquet of stocks is another thing that we can look at. I have mentioned the IT and pharma as separate sectors because independent of whatever happens to the election outcome, independent of what happens to the US taper, we will still have outperformance from these sectors coming through.

Anuj: Tell us your preference of stocks in IT and pharma. There is this large variety of stocks available. What would be your top 2-3 picks within that space?

A: In the IT sector no doubt the three large cap names- Infosys, Tata Consultancy Services (TCS) and HCL Tech would be our picks, but if one goes to the midcap segment the likes of the MindTree, Persistent Systems are companies in my opinion which would be very good plays within the IT sector. This is because not only do they have good momentum in their earnings, they also have good corporate governance to give you that comfort.

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First Published on Jan 31, 2014 03:24 pm
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