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According to Hemang Jani of SSKI & Sharekhan, people are looking at this correction as buying opportunities. Jani thinks that IT and banking are probably two sectors worth looking at this moment.
As regards metals stocks, he sounds bullish on Hindalco and Nalco.
Excerpts from CNBC-TV18's exclusive interview with Hemang Jani:
How do you read today's market move and do you think a lot of that pressure is out of the system?
I think the last two days' volatility has caused a lot of nervousness to a lot of investors particularly on the F&O side. When we look at the open interest across many stocks we find that it has not come down much. That is definitely a matter of concern particularly with the way markets are volatile. One has to watch carefully open interest position over the next couple of days and let the market settle down before pre- empting any directional call on the market.
Is your call just to stay on the sidelines, or stay invested?
If one is a leverage trader, you can't really afford to maintain a status quo. One has to know what kind of margin you have to put for any mark to market losses. If one is a positional trader and is looking at three-six months perspective, this correction offers a good opportunity.
There are reports suggesting that some brokers are asking for margins that are larger than what most exchanges need purely as risk alleviating measures in a downward market. Are you hearing any thing like that?
The way the market has really gone down yesterday and even today's morning session, I am sure that there would be some kind of uneasiness among the brokers and even within the exchange.
People want to have certain amount of risk cover to take care of further volatility. So there would be some kind of margin calls from the exchanges. Even at a broker level, there would be margin calls for some clients.
Will that accentuate the fall?
People who have taken extra leverage positions, if they are not in a position to pay up additional margins, there will be definitely some kind of unwinding of those positions.
Immediately after the fall did the shorts start covering?
A lot of these funds are actually hedging their portfolios by going short on the Nifty. That is why, we have seen even 40 - 45 points discount on the Nifty future yesterday. Even today we see that the discount is in the range of about 30 - 35 points.
So whenever there is a big selling position, and there is not much of a depth in the market, one would see this kind of volatility. I don't think there are many short positions in the market except the fact that there would be some kind of hedging that have taken place. By and large at the retail level, we find that most of the positions are long positions.
What are you advising your clients to do? Are you expecting this to be a weakness that we will see for another couple of weeks or do you think some of the poison is out of the system and after this we may get into a more quite period?
I feel that 70 - 80% of the damage is already done. May be we could see some more volatility in a day or two. Once the market settles down and once there is a reduction in the open interest in some of the stocks, it would be appropriate to take a view.
What did you recommend your clients to do if they had long position in a stock like Hindalco or a Nalco?
We are quite positive on Hindalco Industries. In the last 40 - 50 days, the metal prices have gone up by 14 - 16%. The fact they have corrected in the last couple of days should not perturb anyone. I think the overall outlook and the pricing environment is quite positive. We are definitely positive on Nalco.
What have you advised your clients to do with cement now?
This entire development of supplying to government agencies at a 5% discount is absolutely okay. One should not get perturb about the fact that this government is going to put some pressure on cement manufacturers. But one has to keep in mind that as we enter into the monsoon season, one would see some kind of softening in the prices.
The overall earnings for the current year are going to remain the same. But cement manufacturers would maintain some kind of low profile so as to any tension.
This overall news has come as a positive surprise for the market. Since the stock prices have corrected quite a bit, we would definitely like to get into some of good quality companies like Gujarat Ambuja Cement and even India Cements and Madras Cements. They are more vulnerable because they are supplying to the government agencies. But at these prices we are more positive on the cement sector as a whole.
How will this 5% discount work because we can understand most of the government orders are on tender basis. So on what basis this 5% discount has been given?
At retail level, it is not going to work. But those companies, which are supplying directly to the government agencies will have to offer some kind of a discount.
What do you think of the mentality of the HNI clients at this point? Are they looking at this as a buying opportunity or do you think they are gaming possibility more of a correction in this market?
People who are not leveraged much are definitely looking at this kind of a correction as a buying opportunity. We have seen some kind of buying in some of the frontline stocks like Reliance Industries, Hindalco Industries, and to some extent in banking stocks and even auto stocks.
There is a feeling that if metal as a sector would underperform in a short run, definitely, the user industry is going to be benefited.
So we have seen good amount of buying in companies like Tata Motors, Maruti Udyog and to some extent in two wheelers stocks like Bajaj Auto and even in hotels stocks.
But people are cautious at this point. So people have set aside some kind of fund, if there is a further correction. But lots of people are looking at this correction as a buying opportunity.
You have spoken about shares that have rallied so far. But won't you rather go in for more defensive play shares that have not kept up with the rally, shares like IT and banking?
Definitely, we feel that rupee is going to be little weak against dollar. Then IT as a sector would be benefited. There is a lot of under ownership. In IT, the numbers were quite good particularly of Infosys Technologies and TCS.
So a lot of people feel that there would be some kind of a rotation of money from some of the sectors like capital goods, metals, IT and even banking.
In case of banking, one should wait for the results of State Bank of India and Punjab National Bank. But I am definitely tempted to buy IT and banking as both these sectors are looking good.
Disclosures: I personally do not hold any of the stocks.
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