We have almost probably started to inch towards that level of 5350 which is supposed to be a very crucial support level. What in your own assessment, is the next level to watch out for the markets and do you believe it will stabilise here or there is still more downside?
A lot depends on what the FIIs have in mind. Clearly, fundamentals are pricing in a lot of the negatives, but nobody has a handle on what the global situation would be like. Today we have a fresh problem in Europe. European crisis is weighing on global markets. Keeping that part aside, I do not see too much of a downside from the current levels. I remain positive on the markets, albeit for the near term. It would be more dictated by what views FIIs have on India in terms of the fund flows.
In terms of sectoral picks, do you think PSU banking space looks good at these levels?
Yes, the markets are apprehending that NPA levels would rise significantly going forward and that is predicated on the fact that we are going to see a further rate hike i.e., a high interest rate scenario. Obviously there is a fear of NPA levels moving higher, but it is being overdone more so on account of the public sector valuations than the private sector valuations, but 18-19% credit growth and valuations at book or below book and ROEs anywhere between 16-25%. I really do not think you could get it much cheaper than this.
What to do with these capital goods stories like an L&T and a BHEL?
No, I would say the numbers were not bad. If you look at L&T numbers, the order intake or the margins, which came in at 15%, were not bad. Contrary to the popular perception that things are really slowing down, I think the IIP numbers have shown that at least there is some investment pickup. The last IIP numbers, which came out and we saw numbers from BHEL and L&T, which were not bad at all.
One of the adjustments, which BHEL has is they still have 65000 MW worth of orders in their hands and valuations have just shrunk from, let's say, 20 price to earning multiples on a current year basis to something like 13-13.5 times. I really do not think there is too much of a downside, but coming to aggregate numbers, it is in line with expectations. There will be some reduced earnings downgrade, but 15% sort of a PAT growth for Q4 is there.
On the mid-cap space, do you expect them to outperform over the next 3-4 months?
Currently we are in a risk-off trade. So the markets are gyrating over the last six months or so between a risk-on trade and a risk-off trade. Post-budget, we saw a sharp rally. We saw risk taking comeback to markets. Now we are in a risk aversion environment where large caps and particularly the blue chips tend to outperform, but that's not to say that mid caps do not have value. Whenever there is some risk taking pickup in the sentiments and the environment, mid caps would do better than the large caps. Valuations are clearly compelling.
Keeping in mind the global headwinds that we could face, what in your assessment could be the end of year targets for the Sensex as well as the Nifty? Would you be a contrarian and start looking at buying into any sectors that you have find value in right now?
Yes, I would tend to think so. We should be crossing the 21000 levels, which we have seen before in 2008, sometime near March 2012. So clearly from the current levels, we are looking at a 20-25% upside in market levels over the next nine months or so. To pick up one contrarian sector, it would not be anything but infrastructure pack as a whole. It is just that everybody has shunned this sector, but there is a lot of value in this space.
Source : ET