Returns could take longer but buy on dips, says Nipun Mehta

Nipun Mehta, Founder & CEO, Blue Ocean Capital Advisors, says when you are middle of long-term structural bull run any dip is buying opportunity. However, recovery from investments would take a bit longer he adds. Recovery according to him, would be seen from first half of FY16-17.For investing, one should look at getting into fundamentally sound stocks and sectors that have consistently performed but the wait could be longer, he reiterates. Sectorwise he is upbeat on IT, pharma although valuations look at bit high. He is also upbeat on some select FMCG; consumer durables and consumer discretionary.According to him there are some spaces that could be backed despite their non-consistent performance like financials but within that there are three spaces that have consistently performed are housing finance companies, private sector banks and NBFCs. Investors that can taken in a bit of volatility could also look at public sector banks with a longer-term view, he adds.There are also other areas which could be backed from FY17 perspective like infrastructure but that would primarily depend on the Budget spends. So, the market has different spaces to offer based on holding periods.

Below is the transcript of Nipun Mehta's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.Anuj: Your call on the market now because we have seen fair bit of correction, do you think it is a good buying opportunity and do you think the market will make a move towards all time highs?A: When you are in the middle of long-term structural bull run yes, any fall in the market like this is definitely a buying opportunity but important to understand that the difference that now that there has been a significant run up, the earning season has shown that you are not likely to see the same kind of results for March ’16. The wait could be little longer, the patience could be longer than what was anticipated in terms of rerating of a lot of companies in terms of sudden sharp rise in earnings that had been projected or predicted for March ’16. So that could get delayed to the first half of FY16-17 - is what will be the call. Our sense is you will see a couple of percent downgrade in terms of corporate earnings that could be there. Opportunities like this are opportunities to get into the market but not just in terms of fundamental sound stocks but also in terms of ensuring that the hold could be longer than anticipated.Ekta: If it is a good opportunity to get into the market at this point in time, which are the sectors that you would give maximum weightage to enter into?A: There are some sectors which have performed consistently well and which probably needs to be backed despite their relatively high valuations and in this you could include IT and pharmaceutical. Yes, their valuations in certain cases are high. I would include selectively fast moving consumer goods (FMCG) in that as well basically consumer durables and consumer discretionary essentially, some of which are priced at relatively high valuations but that’s something that could be backed. At the same time, there are segments or sectors which haven’t consistently performed well but also could be backed and in that one could largely broadly include financials but within that there have been three spaces which have shown consistent results which are housing finance companies, private sector banks and non banking financial companies (NBFCs) and that’s something that could be easily backed. However, investors with a bit of stomach probably to take volatility to hold it on for a longer time then public sector undertaking (PSU) banks also could be backed with a little longer view than for the rest of the financials but also with a bit of volatility that could be there, a longer hold that could be there. These are segments which for sure are likely to perform not just in cases where there have been management commentaries which have been cautious, so you saw that in case of couple of IT companies but the guidance or management commentary for FY16-17 continue to be good. So these segments are something that could be backed. There are several segments which for FY17 could be backed but a lot would depend on the kind of reforms that are brought about, for example in the Budget if there is fair amount of stress on infrastructure and ‘Make in India’ probably manufacturing and the infra space which again could have impact on capital goods is something that could be backed but the impact of that would be felt only for FY17 and definitely not impactful as far as FY16 is concerned. So, there will be segments based on holding period; there will be sectors which can be backed based on the kind of risk taking ability an individual has. Therefore, these are three-four space which are relatively safe which could be bet.Anuj: What about midcap pharmaceutical stocks?A: The midcap pharmaceutical has shown that there has been a lot of companies which has The US Food and Drug Administration (USFDA) issues, there has been a lot of companies which saw very inconsistent results and which hadn’t been the investors’ fancy, you saw very limited institutional participation in them. On the other hand a lot of the large size pharma companies which were more consistent, saw a lot of institutional participation and at the same time a lot of these midsized companies have realised that the Indian markets also need to be looked at little more seriously as oppose to the export market that they had been focusing on and that’s something which is gradually becoming a game changer, not just in the form of increased topline growth that could be there but also in the form of lesser US FDA issues that a lot of these companies seems to be having. So wherever you have seen greater clarity or cleaner operations in terms of insuring those FDA issues that could be there or in the form of higher abbreviated new drug application (ANDA) filings that are there is where you are seeing greater investor interest that is there. There are lots of midsized companies which do not warrant the kind of pricing that they seem to be enjoying in certain cases but that’s coming out of some of the ANDA filings that they have. Our sense is for some of these midsized companies a lot of these phase one trials probably will take time to get on to phase two, phase three and that’s where the market is essentially betting and that’s something which could be a risky hold but overall within the midcap pharma space there are decent bets which could be backed. Disclosures: We have not discussed any specific stocks. In terms of sectors I would have personal holdings in these sectors or our clients would have holdings in them.