Stay away from auto, realty and oil stocks: Mehraboon Irani

Mehraboon Irani, Nirmal Bang Securities is bearish on oil PSUs given the government's inefficieny to take any bold steps for reviving the sector since last few months. He is negative on Oil and Natural Gas Corporation (ONGC) after the company’s net profit slumped 34 percent in Q1.

In the present market condition, investor sentiment is low, so it is unadvisable to buy auto stocks now. He also advises avoiding real estate sector as he believes that problems plaguing the sector are likely to continue. Irani is negative on DLF which posted a 38 percent fall in Q1 profits. Below is the verbatim transcript of Mehraboon Irani's interview on CNBC-TV18 Q: Give us a word on Oil and Natural Gas Corporation (ONGC) and what is your view on that stock post earnings?
A: In the short run nothing positive. Stagnant output is a concern. While analysts are going to argue that it is one time 16 billion because of staff cost, personal cost and other things, the fact is stagnant output is a concern. The subsidy burden remains a concern and any public sector undertaking (PSU) in a government which is strapped of funds, where corporate governance is slow, shy away from them.
I have been negative on PSUs including oil PSUs for quite sometime except for the fact that when new oil minister came up with real measures, which were very bold, for sometime Oil India Ltd (OIL) definitely became our top pick but looking at the state of affairs over the last one to one and a half months, there are reasons to be negative and the numbers are nothing great. I would possibly give ONGC a clear-cut pass. Q: Today Mahindra and Mahindra (M&M) comes out with its numbers, it is expected to be good and also Ssangyong reported a profit for the first time in six years, are you positive on M&M?
A: The company may exceed the consensus numbers. There could be a positive surprise in terms of margins. Is this reason enough for me to go ahead and recommend the stock or buy the stock? The answer is no. What we are going to see if there could be rallies in this market. M&M definitely along with Tata Motors because of the Jaguar-LandRover (JLR) story remained the top picks along with Hero Motocorp.
But at the end of it all at present levels, I will not be buying the stock for a possible 5-6 percent appreciation. The sentiment is so weak and despite whatever the policymakers want us to believe, things are absolutely bad and out of control. In such a low sentiment, which is worse than 2009, going ahead and buying something into an auto stock, is not something which any investor will do. So buying the stock ahead of the results if there is a positive surprise, I don’t think that is the best thing to do. Q: What about the midcaps and consumer staples where there is still growth ticking on despite the macro environment, is there anything that impresses you in that space?
A: There are names like. Motherson Sumi, we like Loveable Lingerie, in terms of numbers but to go and buy into companies where the sentiment is so weak, macro is just keeping people off equities. People just want to sell, get rid of equity, nobody wants to buy and that is very unfortunate. Three-five months ago, the situation was getting a bit optimistic when things were moving in the right direction but now it’s no longer moving right. Q: What did you make of the DLF numbers?
A: Topline impressive but the problems plaguing the sector will continue to play out. So, the stock going up is momentary. The way the stock has gone out of shape, from the present level, one could have only expected it to possibly move up. So again, I am not going to read too much into the share price, which is going to happen today post the number yesterday which was slightly better than the expectation at least in the topline. Q: Is there anything in the infrastructure space that you think is turning the corner or infrastructure, metals since the entire space is under so much stress?
A: No. Looking at the way the macros are right now staying away from infrastructure as well as capital goods is the best advise you give to people. The only company, which possibly attracts attention is Larsen and Toubro (L&T). I would use the word capital goods space. Only for the simple reason that this is the only company which has not shorted its balance sheet, all other companies are severely in trouble as far as the balance sheet goes but going and buying into L&T also is not the best advise.
The stock is available at fairly decent valuations but I don’t think anything is going to happen till the time you have this investment cycle kicking off. Looking at the fact that the government is going all out possibly to defend the rupee, you don’t expect too much of spending to happen.
So on the whole, this space is going to remain ignored despite of the fact that a lot of people may argue how much more can it fall. The fact is you buy a stock because it may go up and I don’t see that happening at least for the next one-two quarters.