The dark clouds of Greece, meltdown in China and monsoon are kind of ebbing and it is time to get into stock picking, says Sanjay Dutt of Quantum Securities. Atleast for the time being, global worries are not at the forefront, he adds.
According to him, the markets are fairly valued at current levels and domestic events such as monsoon, inflation and earnings could trigger a breakout from current levels. He believes Nifty can head towards 8700-8800 in the near-term if all the positives play out.
Dutt says domestic consumption and capital goods stories such as Maruti, BHEL and L&T are unlikely to outperform hereon. He advises investors to bet on contrarian positions.
On the contentious Land Bill issue, he says the government played a master stroke yesterday by allowing states to make their own land laws with the consent of the Centre. He believes the Narendra Modi government may be able to resolve the issues pertaining to Land Acquisition Bill.
Finance minister Arun Jaitley yesterday said: "Those states which want to progress fast, suggested that they be allowed to put land rules in their state legislations list and the list be approved the Centre."
Below is the verbatim transcript of Sanjay Dutt's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: At these levels and with an earnings season which many predict is not going to look good would you go long?
A: Yes, definitely, this is a time to pick up your stocks, pick the checklist that you have had, you made all these days and start buying. Because what we are seeing right now and all of us are finding this trend surprising but I am not really because people have had this left out feeling, people had dark clouds from Greece, you had collapse of China, you had monsoon everything else. So, people thought that all the negative was pan out and we will back below 8,000 or 7,800 and particularly the day when the Greek referendum came etc so people were light, people were short in fact. That is the reason why you are seen this strength because most of the events have kind of panned out okay in the short-term. I am not convinced that Greece is solved as yet but for time being it is off the table so a combination of these is what is attracting people to come back and deploy money now.
Sonia: Yes, this market has very successfully climbed the wall of worry as it has done for the past one year. But, from hereon do you expect a lot more upside, because this is the level where we have been facing a bit of heat, a bit of resistance, right? This 8,550 zone? So, what could the trajectory look like from now, say for the next three to four months?
A: A very good question, because from a valuation standpoint, if you see the historical, whether price to earnings ratio (PE) or all other indicators, we are reasonably valued. So, we should not really be up three to five percent from a Nifty stand point or we shouldn’t be down three to five percent. We are kind of fairly valued zone. However, I think the individual opportunities even within the Nifty and otherwise outside the Nifty that needs to be looked at now.
Coming to what looks like next three-four months, I think, we will have those answers in the next two to three weeks because the Reserve Bank of India (RBI) Governor will have the policy coming in an August. By end of this month beginning next month we will have much more clarity on the monsoon. Also kind of, we have had now the Fed Governor Janet Yellen speak kind of being very explicit that, yes, US economy is in a good shape both consumer as well as the employment numbers. So, it is kind of looking okay overseas. So, if these three-four domestic events that I just spoke about if they pan out positively I think then next three to four months the market will start getting re-rated. We would start looking at September quarter numbers so then we probably are getting set for a breakout above 8,700-8,800.
Latha: Am I being too optimistic? I am not normally accused of that. Look at the kind of stock wise news we got today. Adani Ports is building a port in Vizhinjam it got that order today. Adani Transmission has got a transmission line order of Rs 850 crore from Chhattisgarh government. Pipavav Defence has got an order from Russia. Thermax has bought a company and is looking to expand. CMI told us that more stalled projects are coming on and today for the first time three or four of our top ten were people who are putting in money. Are things turning around?
A: If you recollect we spoke last time and I was quite clear that all the efforts that the government has made are going to start showing results very soon. I think things are on the mend so now we will see actual results flowing in. Like we will see what has happened to Pipavav Defence today. The kind of off shoots of that three billion order that might come in here into India and that is coming in are going to be huge because the related industries will get a lot of stuff coming through. Therefore I am optimistic; the numbers down the line sometime September- December would start showing much more improvement.
Liquidity is coming back from overseas. Overseas investors are looking at India, definitely, after they have seen all the problem that China is facing etc. whether it is the under developed European region. So, there is no reason why things are not going to look good both for the real economy as well as for the street out here. I am quite optimistic. Barring 100-200 points dip here and there which you can’t game; you may go down to 8,200 or 8,300 for some odd reason. However, the trajectory for the next six to twelve months is definitely up for the markets. Selective stocks remain invested, be in your conviction ideas that is the game basically.
Sonia: A lot of the domestic economy related stocks are being doing very well. Name like Maruti Suzuki, Larsen & Toubro (L&T) etc do you continue to back these kinds of quality names?
A: No, that is an over crowd trade at this point of time. I have seen that they are in upper end of the range. Most of the positives are built in there. At this point of time I would go and bet on the contrarian kind of positions where people wouldn’t want to go. So, I wouldn’t want to go and hide in the obvious safety plays that we are seeing here L&T, Maruti and the BHEL where we know orders will come, where we know things will happen. I am not saying that they will go down or they will underperform but at the best they will be market performers. I don’t see a substantial outperformance in them over the next 12-18 months.
Latha: So you move out of the private banks probably the Axis Bank and the HDFC, you move out of the Maruti's because they are overcrowded but what do you have left? You have State Bank of India's (SBI) and Bank of Baroda (BOB) which are laden with questionable quality of debt. You have infrastructure companies, Tata Steel which are laden with very cheap competition. What will you buy if you move out the crowded trades?
A: I have learnt in the market for the last 20 years that when you have strong tailwinds go to the pariahs. They are the ones who will benefit from the restructuring and benefit from the strong tailwinds that you have. They are the ones where as soon as some balance sheet issues and some peculiar issues are there they get sorted out. They are the ones which kind of give you those 2X-3x returns. So you got to look at those.
Once again I am talking from my risk reward profile and my own risk profile, lot of people may not want to do that therefore they would prefer sticking on to the Maruti, L&T and manage with that 10-20 percent return. My kind of investor who kind of prefers the high risk- high gain kind of a strategy but at the same time looks at things very clerically in terms of fundamentals, quality of companies etc but having a some kind of a handicap which I think would get rectified in the next few months that is where I would bet right now.
Latha: Just a word on the Land Acquisition Act, I don’t know how to interpret this, it looks like the NDA has taken a pragmatic view on said okay those states which want to go ahead you’ll go ahead amend, we are not able to amend the central law. If you want us to excuse the central law for your specific state, we will go with you in those amendments. How should the market read this, positive or BJP not going to push the Land Bill, negative?
A: I think this is awesome; this reminds me of a typical micro-case which we saw when we had that infamous Nandigram and the shifting of the Tata plant to Gujarat. So, the point here is very clear, BJP found a way around this. If at center we are going to be totally stalled by the opposition for some reason or the other, there is going to be noise on other fronts but we are still going to move ahead. I think this will be a very good masterstroke for them.
You have got a large number of BJP states which are relatively investor friendly also so therefore they have said go enact your laws, go solve your own problems. I was hearing the Finance Minister talking about the Punjab model, what Parkash Singh Badal has already been doing out there. In fact I heard for the first time that is what is happening in Punjab and I was ignorant about it. So, there are out of the box solutions that are going to come out of this government and that is pretty positive. That is the best way to actually short change the tit-for-tat kind of attitude that politics has which we are seeing right now.
Sonia: I just wanted to ask you one question about some of these stocks that have gotten heavily de-rated but are great companies, great business, good management likes of Tata Motors, Mahindra etc do you put money into these names?
A: Absolutely, I think Tata Motors I don’t think there is much to worry about on the longer term. I don’t know where the base would be, we are seeing it in a 52 week low whether it goes down another 10-15 percent I don’t know. I can’t game that really because a lot of short-terms sentiments flows, technical factors do impact these. However if we are talking about an uptick in the economy, we are talking about orders in urban renewals, smart cities and that kind of stuff even if 20 percent of that gets implemented over the next two to five years I don’t see why the Tata Motors will not be the beneficiary.
Like we just heard Delhi government budgeting something like 10,000 buses, which has never been order in the last five or ten years so, where are these orders going to go? These are the kind of companies which will benefit. I know you can go on and on about Jaguar Land Rover (JLR) and international operations being in rag etc. However, they have their own cycle, they get sorted out and good companies, good managements like the Tata’s normally ride out these phases and sort these things out. This is the time to add these kinds of stocks to your portfolio. Sit tight because you don’t make money out of trading and the short-term noise that you hear on television from the wrong words used from sages like us. Just sit tight get your stock right and just be invested for 2-3 years you will make money in these stocks.
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