'Poison has gone out of market'

According to Nipun Mehta of Unitis Tower Wealth Advisors, the poison seems to have gone out of the market. But he sounds concerned over the kind of retail investment that is coming into the market.

He says that every time when the market goes down, retailers move in and invest in smallcaps and those stocks, which are either news or rumour driven. As regards real estate space, he says that the sector looks good but the valuations of some of the stocks looks stretched.

Excerpts from CNBC – TV18's exclusive interview with Nipun Mehta:

Do you think a lot of poison is out of the system now and the markets are looking fairly strong?

Yes. From what we have seen yesterday and today not just in terms of short covering but also in terms of the liquidity that is getting pumping in by the institutions shows that the poison is out of the system.

What is clear and encouraging is that the largecaps are moving up. Though the midcaps and the smallcaps did not move up yesterday, today there has been some move.

Every time there is a fall, there is going to be a bounce back in one or two trading sessions. The retailers throw caution to the winds and invest in small caps and stocks, which are entirely based on rumours and stories. So that does not always make the market very strong. Thus, there is downside to it. So yes, very clearly the pain seems to be out of the way for the moment.

Tata Steel numbers are coming out tomorrow. They are not expected to be very good but seeing a bounce back, do you think that the markets feel that they over did the selling?

The entire metal movement looks to be over done simply because of the LME price movement. Hindalco Industries and Nalco have raised prices. A lot of the metal companies are gradually trying to bring domestic prices in line with the international prices. That clearly is an indication that there is a fair amount of demand, which is actually pushing the prices upward. Even in the case of Tata Steel, the results might not be totally outstanding. But the prices have been sustaining in most metals.

It is also doing a lot of value added steel business. It has seen a fairly sharp fall over the last 2-3 days, but it has recovered. The next couple of quarters should make it very interesting for Tata Steel. With steel prices sustaining at these levels, the results and margins should be better for the steel space and for Tata Steel for the next couple of quarters also.

What are institutional buyers gaming at this point? Are they expecting it to be a steady streak till we get into the other big cue, which is the monsoon?

I think just a few more of the large results still pending. Overall the trend has been positive. I do not think monsoon should any longer be a cause for serious worry, as far as the market is concerned. There have been noises about the monsoon. But I do not think that is a serious cause as far as markets are concerned.

Anything that you are picking up from the midcaps space now?

One needs to take benefit of the market dips to get into lot of largecap stocks. As far as midcap stocks are concerned, one has gone largely by the results that have come in and there have been lots of surprises. We continue to look at stocks like DCM Shriram Consolidated, which is looking fairly positive, based on its sugar expansion and its real estate story.

Is there still a lot of liquidity from the domestic mutual funds that's waiting to be invested in the market, particularly the NFOs?

Gradually that part of the liquidity seems to be slowing down. One has seen a reduction in the numbers of NFOs that have been coming out over the past month or two. There have been three or four, which have not gathered huge amount of money.

There are other funds, which are expected to be investing only in IPOs. So there is a different segregation happening. The entire liquidity need not be allocated towards the secondary market. So gradually we have been seeing reduced amount of liquidity as far as mutual funds are concerned.

To put it in perspective, we believe that there could be just about Rs 1500 - 2000 crore in terms of liquid funds as far as mutual funds are concerned. When one put that in perspective and compare that with Rs 5000 - 8000 crore, which was in the system till about few months back, that obviously looks relatively small.

But then mutual funds have been constant buyers throughout this month and during April. So, that obviously has squeezed out part of the liquidity from their hands.

Any thoughts on Reliance and Reliance Petro?

Reliance Petroleum is very clearly likely to be fairly rangebound. There is no news that's expected from the company for next couple of years. There will be interest at lower levels, where institutions, which had bid for fairly large quantities, are likely to get in, and try and look at the stock with a long-term perspective.

At higher levels, there is always going to be profit booking from lots of retail investors, who got money from the IPO itself. So I do not see any take off as far as Reliance Petroleum stocks is concerned. It could be range bound between Rs 70 - 75 and Rs 90 – 95.

But Reliance Industries certainly looks very interesting. The fall that was there was fairly unwarranted.

How are you looking at real estate, especially now with the DLF issue likely to come through?

I think DLF should get fairly good response simply because of the fact that one has not really seen this kind of issuance and an IPO of this size not just in the primary market. That itself should bring in a fair amount of interest from the institutional investors as well as the retail investors.

Broadly if one looks at the real estate space, yes it does look to be somewhat stretched. There is a story, which is there, which is likely to bring in a huge amount of gains for the next two, or three years based on how the real estate prices sustain themselves.

The demand-supply situation is certainly in their favour. But one is seeing a lot of these stock prices running away and discounting.

Real estate as an industry, as a sector looks fairly goods, but some of the stocks are fairly stretched in terms of valuations.

Any disclosures that you would like to make?

DCM Shriram Industries, Himachal Futuristic Communication, Reliance, and Reliance Petroleum are stocks that we have recommended our investors to take certain positions; and they could be holding some of the stocks.

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