Quantum's Sanjay Dutt feels Nifty has seen its high for this year; says stay away from Infosys

Similarly, he also said that there was a lesser chance of the Nifty breaching 9,650-levels. Flows would provide the market a bottom.

Speaking on Infosys, he was disappointed with what transpired over the past week. “It is disappointing with what happened (at Infosys) and how it played out. It was unfortunate that the CEO and founder had a spat,” Dutt told the channel.

Moreover, board-run companies should not face a situation like that and in light of the tiff between Narayana Murthy and Vishal Sikka, it was good that the latter left, he said.

He believes in completely staying away from the stock and rather watch out for plays in TCS, and HCL Technologies, among others.

On real estate, he does not see much opportunities based on how the sector has performed. Having said that, there could be some selective plays, he added.

Dutt holds on to positive stance on PSU banks and believes that the rally has not played out yet. Meanwhile, he also remains hopeful on earnings picking up for FMCG and consumption-themed companies, going forward.

Simultaneously, cement stocks are safe bets for about 2-3 years to make money. If you haven’t added to the portfolio, one could look for opportunities to add, Dutt told the channel.

Among private banks, in the next two to three years, he said that the safest bet could be ICICI Bank. It was plagued with huge problems and those are under resolution, he said, adding that the stock was grossly undervalued as well. It is best positioned to make money, Dutt concluded.

Below is the verbatim transcript of the interview.

Anuj: Thoughts first on Infosys, are you happy that Nandan Nilekani has come back or are you disappointed with the whole process and more importantly, from stock markets point of view, what next?

A: I think totally disappointed with what happened really and how it played out. It is unfortunate that a professional CEO and a founder had this public spat and a complete trust in the board was lost. I wish it was done better, in the sense that after all listed companies are board managed companies and you cannot as a founder get into a public spat and start criticizing every step or everything that the board is deciding and the board was ultimately backing the CEO and I think Vishal Sikka did a very sensible thing by ultimately quitting because anyone can’t work in that kind of an environment.

I definitely feel that it was an unfortunate event, but it has got behind us. I am happy that Nandan Nilekani has stepped in and he will try and put the house in order. Like he said, he would be there as long as required and they would get into a professional CEO. However, I really wonder that given this background, given what has happened, it is going to be quite a challenge finding a good CEO having a global experience and to lead a company like Infosys. So, let us hope for the best, but I am a firm believer of one saying that wherever there is smoke, there is a much bigger fire. So, if I have to buy anything in IT, I would not buy Infosys yet. I would want the dust to settle down.

Reema: What about the market, we saw about a 300-400 point correction. From there at least things have stablised in the last one week to 10 days, how are you seeing the market from here on?

A: My sense is that baring any major positive fundamental event that changes the economy, forget the random noise that we have in the market of going up by 500, going up 200, going down, whatever, we have probably seen the high for the calendar year. It is going to be a bit of a struggle in kind of getting to 11,000-11,500 because earnings are still giving us a lot of heartaches and I don’t find anywhere in the Nifty universe that 30-40 percent of the universe can appreciate 15-20 percent to take us beyond Rs 11,000.

So for the year, maybe the Nifty has probably seen the high, but at the same time that does not mean that I am bearish and I am looking at 9,400 or 9,200. I think we will consolidate, we will remain range bound and as always individual opportunities across midcaps and of course within Nifty companies also would outperform. However, taking a bet on the Nifty, I think I would not do that at this point of time. It is going to be quite challenged to make money purely being long in the Nifty.

Anuj: That was my follow up, you said very confidently that the high for the year has been made, has the low also been made, and I am not talking about the yearly low, I am talking about the recent low of say 9,680 thereabouts.

A: I think so, I don’t think we will go below probably a 20-30 percent probability that we will break that 9,650-9,600 level because liquidity flows in. Flows are very good from domestic investors, they are compelled to put money into mutual funds, there are no investment avenues available so I think flows would provide us a bottom and even international investors realize and they are looking for every opportunity to get into good companies.

Within the index, there are companies which give an opportunity which fall 5-10 percent to take Nifty to 9,600. Some of the larger banks, Reliance Industries, these kind of companies, so they would lend a good amount of support baring of course everything is a caveat with a fact that if there is a major event, then you cannot do much about it whether it is macro event or international event, but otherwise I don’t see any reason why Nifty will go below 9,650 in this calendar year and same time I don’t see it really roaring up beyond 10,500-11,000.

Latha: I just want to scratch the point on Infosys a little more before I come to the other stocks. What would you watch out for in Infosys to turn a buyer? You said you would not buy it now, would it be the new CEO, would it be client retentions and additions, exactly what?

A: Frankly it has really put me off. Why do I have to buy Infosys, if I will buy, I will buy TCS, I will buy HCL Technologies. The kind of acrimony, bad blood, that too in the public, it really does not befit anyone and that too for person like Narayana Murthy stature to have gone this route – I would have agreed that he should have taken this route if he had tried everything else. He should have written to the board, he should have written to the regulators that these are corporate governance problems, and he is concerned as a shareholder, as a founder.

However, when you have a board managed company which you yourself appointed as CEO, you have given charge to a professional board and they are absolutely A-class people who are in the Infosys board, and then you come around, you come out and you keep kind of nitpicking and you keep kind of poking the CEO, poking the board, I would not buy it. Why should I buy it?

Latha: Let us get to the other issue, real estate. Do you think things are clearing up? Now we are seeing this now eminent debt reduction in DLF as well. Have the land mines been cleared enough for you to start buying real estate stocks?

A: No, not as yet because I have been checking this on the ground on a monthly basis, fortnightly basis. There is still a huge amount of inventory lying with these second rung and third rung players, fourth rung players. They are all stuck with debt, they are having problems. So, what you have seen probably is an oversold kind of bounce back in some of the places. However, to take a secular bet that real estate is out of the woods, I don’t think so. Not as yet, I think there is pain.

You will continue to see a time wise correction which probably may last another 18-24 months. Yes selectively you may get opportunities like what DLF has done, so, therefore you may get a trading opportunity of 10-20 percent, but by the time you wake up, the insiders have already made money on that. So, you really won’t be able to left making money by reading the newspaper next morning. So I don’t think there is much of an opportunity in real estate as yet, no.

Anuj: Last time this year, you were a table thumping bull on PSU banks and that trade has worked out really well. However, what next, State Bank of India (SBI) of course this quarter came out with a bit of kitchen sinking with all the subsidiaries getting merged. Now there is some fresh news flow on whether weak banks would get merged with strong banks or weak would get merged with weak banks. Do you think the rally has played out in PSU banks?

A: I don’t think so. I think there is more opportunity still there to make money in PSU banks. Entry points you need to really game because with volatility in the markets, the Bank Nifty falls 200-250 points and two-three days it is up 300 points again. So therefore you got to understand that you got to identify your PSU banking stocks and use the right opportunity when you get a reasonably good correction to buy them.

I don’t think that the PSU bank story is over as yet. I think there is long way to go. The fundamental problems are being addressed, yes, frustratingly very slow which Latha knows better than anyone of us, with this whole NCLT process also not being that easy to implement and everything, but at the same time I think for a long term value investor, there is still opportunity to enter at the right time and just remain invested.

Latha: What about the consumption plays? A lot has been riding on these two successful monsoons and therefore uptick in consumption. I am not speaking about the Titan’s and the motor cars, not the consumer discretionary, the more FMCG companies. Is there something in that or is that space overpriced?

A: I think there would be opportunities there because most of them are now kind of ironing out the GST problems and have kind of gone through the demonetisation bump. So wherever you get opportunities like you got an opportunity in ITC a few weeks back, when all this hullaballoo came about, taxation, etc. that is the time when you need to come and buy these companies. They are relatively safe bets I think for retail investors to come and buy and keep in their portfolio; something like I just heard Ashwani Gujral talking about Nestle having appreciated just about 10 percent since that Maggi Noodles fiasco.

So, if Nestle were to even at this level, were to fall 2-3 percent or 5 percent, I would be a buyer because I think there is a strong demand down in the second rung cities as well as rural areas. Consumption is coming back, people have kind of adjusted to demonetisation, and companies are kind of adjusting to the GST impact. So, I am quite hopeful in the second half, the earnings would pick up now.

Anuj: Do you buy cement stocks, any of them at current prices?

A: I think cement is a good story ahead. One needs to be selective, and if you have not added it to your portfolio, look for opportunities to add. Do good amount of homework, and there is money to be made because I think next two-three years ahead, they are relatively safe bets to make money. I don’t think really there won’t be much of a problem in terms of both offtake as well as pricing power for cement companies.

Reema: Any pockets of opportunity in the infrastructure or the capital goods space?

A: Very difficult to find. There are opportunities, some of the Kirloskar companies, I think are coming back on their own, things are normalising with them with the infrastructure plays coming in, but I think it is very difficult to identify good quality companies, but a lot of work needs to be done there. However, I think there is an opportunity there but a lot depends on second half recovery in the economy because numbers this time have not been too good as one would have thought, but one can blame that to demonetisation, GST, etc. but I think second half (H2) onwards, one can expect better numbers even from the capital goods and the infrastructure plays.

Latha: Final question on banks, you spoke about PSU banks, which part of the private banking space still has money for you, is it small banks, is it the Federal, DCB type or is it the well-known Axis, HDFC Bank?

A: In my opinion, in the next two to three years, the safest private bank to put your money is ICICI Bank. It has been plagued with huge amount of problems, those are under resolution right now, it is grossly undervalued if you compare an ICICI Bank with the market cap of Kotak Mahindra Bank or Yes Bank and the size of book, etc. I think it is best positioned to make you money. The risk reward ratio is very good there. So if I were to buy any private bank, that is the only bank I would have in my portfolio and obviously I would like to disclose I do have that in my portfolio and I intend to remain invested for two to three years.

Anuj: Thoughts on Tata Global Beverages which has really been the strongest stock over the last fortnight or so?

A: I have not done much of research and reading on there and I don’t really want to comment without having any knowledge about it.