Use Greece-led fall to buy IT, Capital Goods: Ratnesh Kumar

Independent market expert Ratnesh Kumar says worries in market — India as well as global — are likely to stay on resulting in higher volatility and lesser risk apetite until Europe votes on July 5 to get a referendum on Greece. India at the moment is not facing the heat of Greek crisis, but one can expect such significant global event to impact its equity market.

In an interview to CNBC-TV18, he says the domestic story is seeing some direction with green shoots emerging in capex, and the correction may provide an opportunity to look at quality financials and capital goods sectors. The stability of rupee, even on the face of taper talks, is a confidence booster making IT stocks attractive. He expects IT to give better returns in FY16 compared to FY15.

Below is the transcript of Ratnesh Kumar’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18. Latha: What are your first thoughts? Are we going to see a continuous haemorrhage in Asian markets till you get some kind of stability in Europe? A: My sense is that markets in general in Indian market as well as world markets were quite sanguine about Greece and the implications, especially since the time the discussions were going on and it was not looked at as much of a risk, little bit here and there. So, the developments over the weekend, what has come through ahs clearly taken the market by surprise and now, next week or so is going to be kind of hair raising which is what is going to trouble the market which is going to result in volatility, lesser risk appetite. So, that is clearly not good for emerging markets in this short duration including India. And, then we have to look at, from India’s perspective, obviously these reactions are being driven by global developments and during this time, what is it that the investor should do to position for post Sunday. Reema: So, do you also agree with our previous expert’s opinion, that Indian is not yet in the firing line and any knee-jerk reaction is simply to do with the Greek headlines that we are getting? And if yes, which stocks, which sectors should one look to accumulate on this weakness which has been provided to us? A: By firing line, if you mean India has any exposures, debt, import-export relationship, clearly not in a meaningful way. However, this is a significant event for global risk appetite, volatility in currency, bonds, etc. So, those things impact capital flows and that is indeed going to have an impact on India also. And in fact, increased volatility pushes the market down, further lower, below 8,000 on the Nifty, then you will have opportunities which will come up where the stories, domestically, we know are going in a particular way and this correction will give opportunities in areas like quality financials. Some of the select capital goods names which are seeing some green shoots and this would be an opportunity for the investors to actually look in that direction.

Latha: The rupee has been a relative outperformer. At this point in time, it is down but, just all of 0.4 percent, not even half a percent lower at this juncture – a third of a percent, as you can see 63.86. We ended Friday at 63.64. Will the relative stability of the rupee which was not the case at all in the taper talk and not the case during the Lehman crises where September 2008 and June 2013, the rupee was the starting point of a lot of weaknesses. Now that that is in a much more stable situation, will that mean any solace for equities? A: It would. Clearly the taper and the US rate situation, still even today as Greece is front and centre of the discussion, that is still the more important factor. So, in 2013, when you had the taper talk, that was a far more significant implication factor for India than what is happening in Greece. But, right now, the issue is Greece, obviously the market has to get through the next week, 10 days and during that volatility period, I do not think India can avoid seeing cuts if the rest of the markets are going down. And the strategy during that period should be that okay, there is a sentiment impact because of that, there is a flows impact because of that, but can I look within that impact to look for opportunities? Latha: So, would the opportunities be look for IT stocks or something like that? A: IT, you have domestic cyclicals which are strong companies because you do have some green shoots on the capital expenditure (Capex) side. Let us hope that continues as well as quality financials because there will be an impact on those sectors probably more than the others especially financials and capital goods and those would be the areas to look at for opportunities.