Any rise beyond this could be a result of excess liquidity: Kishor Ostwal

Interview with CMD, CNI Research

Kishor Ostwal, CMD CNI research spoke to Abhishek Vasudev on second quarter earnings, RBI and market outlook. Edited excerptes: 


What is your view on the near term view on the markets given the current phase of  consolidation? What are the triggers that one should watch out for?

The near term trigger for the market to watch out for is the Reserve Bank of India's (RBI) policy action. The markets have run up in last two months and the same was also justified by earnings growth in the second quarter. This is the reflection of RBI action in the early part of the year when it had cut key rates by 100 basis point rates. Apart from the RBI action the changing political scenario matters most as Gujarat elections are due in December. US elections in November may not allow the US markets to drop significantly.
 
Would you like to advice any stock for an investment horizon of six months?

I would advise investors to buy Century Textiles, Clariant Chemicals, Karnataka Bank, Reliance Industries, Tata Steel, JSW Steel and B F Utilities for a six months horizon. One should avoid auto stocks, VIP Industries, TTK Prestige, Jubilant FoodWorks, Dish TV which are expensive on the basis of valuations.

What is your outlook on the mid and small-cap segments? Do you find value in any of the sector from a medium-term perspective?

Large cap stocks have reached close to peak valuations in last two months. The Sensex valuation on earnings is fair at 18,900 and we are very close to that. Any rise beyond this could be a result of excess liquidity. Therefore, in my opinion mid cap will be the best bet in the given scenario. I would prefer bottom up approach instead of sectoral call. I would avoid IT, Auto, FMCG and healthcare sectors as they are over bought and expensive. Real estate and Infra could be a dark horse for the street. Education and cement could stocks would still be better play as they are under leveraged.

What is your assessment of the second quarter earnings announced so far? Any positive surprises?

Second quarter results did beat analysts expectations. We were expecting 10% earning growth but as of date the earning growth has exceeded 15% which is a good sign. In fact, this is reflected in Nifty consolidation around 5,600-5,700 levels. This is clearly signaling that there may not be a big drop now in the market. We can see bottom at 5,450 if some real negative news sparks. Metal space is coming out of woods. JSW Steel was a surprise and I would mildly bet on metals especially JSW Steel and Tata Steel.

What is your investment strategy given the current scenario? Any sectors that are on your investment radar?

I prefer stock specific approach. Yet as I mentioned, Metal education and banking could be positive whereas auto could be still negative. IT, FMCG and healthcare are over bought and expensive sectors and prone for shocks of downgrades as holding consistently at the same high level makes things difficult.