See more downside risk for mkt than upside: Deepak Shenoy

Although the midcap index on Monday was at a lifetime high, Deepak Shenoy, Capitalmind.in says one needs to be cautious because valuation of the CNX 500 level are at the highest level since 2008 and if first quarter earnings are not good then it will be a disappoint which will push the market down.

So, there could be an upside of 2-3 percent but the risk to the downside is much more, says Shenoy in an interview to CNBC-TV18.Below is the verbatim transcript of Deepak Shenoy’s interview to Ekta Batra and Anuj Singhal on CNBC-TV18.Anuj: New high for midcap index, lifetime high in fact. Do you see Sensex and Nifty catching up now or is it going to remain the broader market story? A: I think the broader market story currently is – even the Nifty index has just broken out of that little bit of resistance that it had. I think overall I believe that we should be cautious. Valuations at least at the CNX 500 levels are at the highest levels since 2008 and if this earrings season does not turn out to be good, I believe these disappointments will push the market down. So, I think we should be cautious here. I see 2-3 percent up but I see much more risk of the downside. Ekta: I wanted your thoughts on L&T Infotech, the IPO that opens today. Do you think that it is going to see a lot of interest and your thoughts personally on it, would it be a subscribe? A: I think now the market in the IPO business has nothing to do with fundamentals. It is starting to become a financing play. We are getting 60 times oversubscribed in recent IPO. We have got Rs 20,000-30,000 easily allocated through financing, through IPO. So, I believe, yes, there is a lot of interest on the financing and even small pop on listing is exciting more players to come into this space. So, I believe their IPO is going to be largely about listing gains and not really about the fundamentals. I am not very positive on IT in general and perhaps L&T Infotech is not an exemplary player in the sector. So if you really want to be exposed to IT you would have to go for the larger cap. There is issues with IT visas in the US which has cropped up over the weekend, there is a whole presidential election and what will happen post that so I believe some of those will impact the IT sector as a whole. L&T Infotech while being a smaller player in this space, I don’t think after these valuations it is going to get a tremendous amount of growth in valuations going forward. Not very positive but listing gains, I am sure with this market will happen. Anuj: Anything on auto names? Almost assuming leadership mantle, of course they don’t count for much in the index except for Tata Motors but anything that you like here? A: Interestingly you are seeing some of the smaller auto ancillary players also move up quite a bit. Even though stocks like Motherson Sumi were as a disclosure we have a position, they are not moving so much but in general auto sales disappointed according to me in the month of June. I believe going forward good results are going to be expected of Hero MotoCorp and Bajaj Auto largely because of the good monsoon.I don’t see car sales moving quite that much and Maruti itself has an impact because of the yen trade. So, I am not very particularly fond of going very long on auto at this point. However, I think longer term, as the pay commission recommendations move, there will be some good impact as well. Ekta: I wanted to ask you about the cement space. Any particular stock that you like post all of the M&A that is taken place especially even including today, LafargeHolcim and Nirma?A: That was an interesting play. I think there were about five players in that fray and then Nirma has got in finally. However, I like the smaller players down south so Ramco, Deccan Cements, I think those are interesting plays. They have been coming up in our little outliers list which is some kind of an algorithmic momentum list that we have been seeing. They are up 25-30 percent. Overall I like to sound a little bit of a caution on cement, I think they are overvalued stocks in general. I would only buy them on significant dips and only the midcap players currently in the south. I believe that is where the biggest move will be going forward. Anuj: Stock ideas in the broader market, anything that looks good to you from say 20-25 percent returns point of view from here on?A: I think the point here is most stocks even the good ones seem to have been over valued or valued very richly. We are still looking at some small and midcaps. One of them is a company called Garware Wall Ropes As a disclosure we have recommended and we own it. It is one of the largest producers of polymer cords in the world. They make nets, fishing nets and sports net and so on. They are a 14 P/E growing at 20 percent plus so we believe that even if that stock falls now we would still be positive on that stock. So, that is one of the stocks we are looking at. Tube Investments is another one which has just set up a 2.5 lakh per month TI Cycles factory in Punjab that will increase their capacity I think nearly by 50 percent or more. So, I believe that is going to do well in the medium to long-term.