Stick with pharma & IT; won't buy RIL now: Nirmal Jain

The mood remains that of caution, so investors to should continue to play the market using a defensive approach, recommends Nirmal Jain, chairman of IIFL.

In an interview to CNBC-TV18, Jain said that he remains overweight on technology and pharma stocks and would prefer sticking to them in the current market scenario. While many brokerages have upgraded their outlook on oil and gas major RIL post its Q2 earnings, Jain said, he would not buy the stock at current level. The company’s net profit in the second quarter grew 2.6 percent quarter-on-quarter (up 1.5 percent on yearly basis) to Rs 5,490 crore, supported by strengths in its petrochemical and refining businesses. (Read More) Meanwhile, he advises buying cement stocks like JK Lakshmi and JK Cements. Below is the edited transcript of Jain’s interview with CNBC-TV18 Q: What is the approach now the investors should take? A: Investor should continue with defensives. Whatever assets we have allocated to equity will remain largely in IT, pharma, select fast moving consumer goods (FMCG) and select telecom stocks. Inflation numbers have been weak, but that was more or less expected. The reality is that the food prices only on prices all these can never be impacted by monetary policy, but if our monetary policy has to be governed by this, then there is some worry that we are seeing in the bond market. Having said this, there are two schools of thought. One says that the repo rate may be further increased and the other says that it may be kept constant. But I think everybody agrees that the marginal standing facility (MSF) which is more relevant that is where banks are borrowing today from the excess government security- that maybe bought closer to repo rate maybe just 100 basis point what has been the original idea. Then also the cost of funds and the short end will come down so the weak negative numbers what we are talking about inflation numbers, one has to see from a medium to longer term perspective but as the money is in hand of the consumers particularly the rural India is increasing and there is shortage of food, vegetables and more so the shortage and inadequate infrastructure for coal storage and transport. These problems can’t be resolved in a few days or few weeks. They will take years and years of constant effort towards that and that government has to act on that. Q: What is the sense you are getting of the markets? 6140 in the face of not so good fundamentals for the economy but liquidity coming in thick and fast – what do you tell traders- stay with the trend and how do you hedge yourself? A: If one looks at the market, although indices have moved up, but most of the money as well as the rises in prices have been concentrated in few stocks and few sectors. I am not an expert on the trading or the technical part of the market, but fundamentally we tell our investors to stay invested in sectors and stocks where beta is relatively lesser. Even if market falls, these stocks tend to fall lesser than the rest of the market. They are not very sensitive. At the same time if the market has to take off then they will not participate fully in the rally, but that is a safer approach. In terms of portfolio, if one really looks at it – it still has to be overweight IT stocks where growth visibility is still pretty good. Maybe some pharma stocks where large ones which are riding the global export positive trend and select FMCG maybe midcap FMCG and some auto stocks. But other than that, rest of the market remains lackluster, so whatever rally we have seen has really not sustained in the midcap and smallcap in any significant way. The mood is still cautious, but the way global scenario is, growth has slowed down everywhere, it is not India alone. There are issues with every metro, every economic in terms of macro variables. Relatively speaking India is still continuously getting money and one very positive development that has happened is that the rupee has stabilised. It is moving in a narrow band, it is not looking like stumbling down to level which is any level. That gives lot of confidence to foreign investors. Once that is in place there are various kind of players, there are investors who look at long term, who look at a positive trend after elections. Investors who will say okay this is the time to invest because the market from here the economy has to look up and so will the market be. We still continue to get some money because of relative positioning in the global economy and that trend will continue. Q: Would you not buy Reliance Industries at this level expecting it to rise? A: Reliance is a giant with several factors playing on it. I would still not buy this point in time, I will wait. I personally haven’t analysed or understood that company too well but whatever broadly I know it is a company more for, it is such a large company that any large fund will have some part of it but from an individual investors point of view they may not to have this stock in their portfolio. Q: Anything other than IT and pharma that you are recommending because of the rupee depreciation would you recommend any of the cyclicals at all for an investor? A: There are two themes. One can look at cement although valuations have corrected. The demand has been slow, but capacity is limited. There is no new large capacity in pipeline, so whenever there is recovery in some companies, researchers have recommended JK Lakshmi Cement and JK Cement. Other than that we are not recommending anything in cyclicals or metals from a fundamental point of view. There are two themes that are working now. One is exports which is IT and pharma and the second is rural economy is doing very well- monsoon has been very good, so one has to be selective with seed companies or agro chemical companies, but they can do well.