Market may remain subdued for the time being: Alex Mathew

Interview with head of research, Geojit BNP Paribas Financial Services

The markets have been lacklustre off late and the recent policy statements by the Reserve Bank of India (RBI) also failed to bring some cheer. Abhishek Vasudev spoke to Alex Mathew, head of research, Geojit BNP Paribas Financial Services on the road ahead for the markets and the stocks that one can invest from a medium-term perspective. Edited excerpts:

How do you see the markets panning out going ahead? What are the triggers that one should watch out for?

Investors are disappointed by the RBI’s policy stance of keeping repo rate steady, especially when commodity prices are declining. Borrowing cost of Indian Inc is very high, which creates panic among the corporates.

The central bank is concerned regarding the inflation. Once the inflation is contained, they may reduce the interest rates. A move to slash the cash reserve ratio (CRR) will infuse more liquidity, and this may prompt banks to reduce the lending/borrowing rates to a certain extent.

I feel that the market may remain subdued for the time being. During this period, selective stocks may give good returns. Chinese policy measures to boost their economy, US Presidential election results will be important events to watch out for. While, on the domestic front, index of industrial production (IIP) data and implementation of policies decisions to reduce the fiscal deficit will act as a catalyst.

In the light of this development how should one play rate sensitives? Are you bullish on any particular rate sensitive sector?

Market had already factored the RBI policy to a certain extent. Among the rate sensitive sectors, large-cap banking stocks like ICICI Bank, HDFC Bank, Axis Bank, Yes Bank and IndusInd Bank are looking attractive at these levels. In the PSU banking space, Oriental Bank of Commerce is good bet for the long-term.

Select reality stocks like Godrej Property, Oberoi Reality and Sobha Developers also look good for investment.

How has the September 2012 quarter result season panned out thus far? Are there any companies that have surprised on the earnings front?

The quarterly numbers were not exciting. Higher borrowing cost and higher input cost clubbed with currency volatility are the key reasons for this under performance. However, Dr. Reddy's Labs, M&M, L&T, ICICI Bank, Axis Bank, HDFC and HDFC Bank came out with good set of numbers. PSU Banking stocks especially PNB and Indian Overseas Bank disappointed the Street. Investors are concerned on the potential increase in bad loans and asset quality of the PSU banks.

Do you see value in the mid-cap/small-cap space? Are there any companies that you would like to recommend from this lot?

There are plenty of mid-cap and small–cap companies where one can invest. Glenmark Pharma, Whirlpool, JK Tyre, JK Lakshmi Cement, Unichem Lab, Titan Industries, Alstom Projects, Essel Propack, Karnataka Bank, LIC Housing Finance, Oriental Bank of Commerce, Yes Bank, Biocon etc came with moderately good set of numbers and one can invest in these stocks for the medium-term.

How do you expect precious metals and crude oil panning out in the near-term?

The outlook for the precious metal and crude oil prices is looking weak due to weak Euro, concerns about the global economic growth and higher (crude oil) inventory data. Investors are staying on sidelines ahead of the US Presidential election. Lower demand from China also keeps the commodity prices in check. However, the long-term outlook for gold is still bullish.