With inflation expected to cool on a better monsoon, Kishor Ostwal tells Krishna Merchant about its effect on the foreign investments and the stocks to buy. Edited excerpts:
Foreign institutional investors (FIIs) have invested Rs 2,245 crore so far this year. Do you think the trend will continue?
Yes, I believe so. Inflation is expected to cool off on the back of a strong monsoon. Also, Saudi Arabia and Yemen that are pushing for a rise in oil supplies can act as a trigger for a fall in oil prices.
Thus, there are reasons for FIIs to put money back in India.
Where do you see the markets heading?
We expect the markets (Nifty) to consolidate in the 5,300-5,500 range. In terms of valuation, the markets are trading around 13.5x FY11-12 P/E (Price to Earnings) multiple, which seems reasonable.
The average 15-year valuation for the Sensex is 15x P/E. Also, the MSCI India index is trading at 11x FY12 P/E, which gives enough comfort to the long-term investors.
Reliance Industries (RIL) has fallen 10 per cent in the past two months. Is it a good buy at the current levels?
RIL may get some relief from the negotiations in gas prices. But with the KG-D6 gas production coming down, it will not have free gas to sell to outsiders.
Whatever RIL produces will be used by the core sectors and it may not get the price that they want, which will have a major impact on the bottom-line. Hence, the stock may continue to struggle.
With some clarity on gas pricing, the stock may look up. Another key driver for the stock would be the company becoming debt-free in FY11-12, as indicated in the recent Annual General Meeting .
Sun TV has bounced back after a steep fall last week. Do you feel all the negatives are priced in?
As long as Sun TV is under controversy, it is in trader’s zone. Traders will take advantage of the volatility. Investors should avoid the stock currently.
Reliance ADAG stocks bounced back after the favourable Supreme Court ruling on Friday. What is your view on these scrips?
Reliance Infrastructure and Reliance Capital are the best bets from this space, as they are in the oversold zone.
Market buzz suggests that Reliance ADAG may sell 5 per cent stake in Reliance Mutual Fund to Axis Bank. This will unlock some value in the stock, I believe.
Also, Reliance Capital may apply for a banking licence. We do not like Reliance Communications and Reliance Power because there is high debt and FCCB overhang on the stocks.
Do you like any stocks from the consumer durables pack?
We like Camphor & Allied Products and Wim Plast from this space. Investors should look at stocks that are trading below 10-12x 1 year forward P/E.
