The markets have taken a breather after the sharp run up seen since September post the actions of various central banks and the key policy announcements by the Indian government. Gaurang Shah, assistant vice president, Geojit BNP Paribas Financial Services tells Abhishek Vasudev that one also needs to keep a tab on oil prices and the rupee. Edited excerpts:
Markets have been consolidating since quite a long time now. What are the triggers that can take them higher?
The consolidation is visible since past two weeks. If you see from September 2012 till date, we have moved up from 5,200/5,250 to 5,800 on the Nifty spot on the back of government reforms and inflows from foreign institutional investors (FII).
The next triggers to look out for will be second quarter earnings, Reserve Bank of India's (RBI) credit policy review and the outcome of US Presidential Elections. One should also keep a close eye on the crude oil price movement and the rupee-dollar equation.
On global front, there are renewed concerns over the mounting debt crisis in Spain and Greece. What is your outlook on the situation existing in Euro zone? How is it going to impact equities in the near term?
It is very difficult to predict the outcome of the situation in the Euro-zone, in what shape and how will it end is anybody's guess. The efforts have only pushed the problems back and have failed to resolve it in any decisive manner. In my view, there will be more funds and bailouts required by Spain and Greece in the near future. If there is a setback, then this could translate in to global risk-off mode, which may result in equity sell-off across the globe.
What are your expectations from the Reserve Bank of India's upcoming policy review? Do you expect the rate cut to happen this time around? How should one approach the rate sensitive ahead of the policy?
Given the noise on the Street, one believes that there exists a possibility of a small rate cut either in Repo or cash reserve ratio (CRR). However, taking into account the recent inflation numbers there could be a status-quo maintained.
One can expect the RBI to ease interest rates in the next two to three months. In our view, private sector banks are more preferable to PSU banks.
One can look at sound balance sheets in the auto/NBFC’s and real estate from a long term prospective.
Were the results announced by Reliance Industries and Infosys in-line with your expectations? What should one do with these stocks now?
The results were in-line. It will be a challenge for both these companies to maintain their top-line figures and margins in the next few quarters. As a brokerage house, we have a “HOLD” recommendation on both the stocks. We are advising our clients to not to add at these stocks at the current levels. We may reconsider a change in this stance on a meaningful correction.
How should one approach defensive sectors such as FMCG and Pharma given the fact that these counters have already run up sharply?
These two sectors have been the darlings of the markets for some time and will continue to outperform from a long-term prospective. One can expect some profit booking, which may translate into a minor downside correction and this should be seen as a buying opportunity.
How are broader markets looking at the current juncture? Which stocks/sectors are you bullish on from this space?
Along with the large-caps, the broader markets have done well but one needs to be very selective in identifying sectors and stocks in this. We prefer mid-cap private banks such as Indisind Bank, YES Bank and DCB.
From the mid-cap IT pack we like Persistent Systems and Mindtree. From the capital goods and power space Rural Electrification Corporation, Power Grid and IRB Infra look good, from the oil and gas space we like Petronet LNG and from the pharma space we like Cadila Healthcare and Lupin.
