S Sreesankar of IL&FS Investsmart expects the market to remain volatile, but does not see it running away. It will move more in a range between 9,000 and 10,500 levels, he says.
On technology, he says though the sector underperformed during the markets' journey from 10,000 to 12,500, with rupee-dollar exchange rate around Rs 46.50, the thought process on technology would do much better than what it has anticipated.
Sreesankar gives his view on stocks and sectors.
Excerpts from CNBC-TV18's exclusive interview with S Sreesankar:
How do you see the market poised now, because it has turned a bit volatile in the next couple of days?
I would continue to believe that the markets will remain volatile, but I don't see it running away. It will move more in a range between 9,000 and 10,500 levels.
I would expect the market to correct because the way it is behaving, it is making itself more expensive compared to the peers, that is the other emerging markets like Latin America, etc.
So it will probably put more pressure on people to reduce the weightage in India. The reason being India's continued outperformance vis-à-vis the other markets.
What are players doing at this point? Do they largely have their hands off the table or are they using this opportunity to buy or sell in whatever specific stocks they can?
People are looking to add to their positions, where they are finding fundamentally strong stories. Also from some of the large blocks of trades that are happening in midcap segment, probably there is an exit happening. Some informed buyers are buying these block trades and clearly there is a moving away from some of the midcaps.
Any thoughts on where the auto space will go from here?
We as a house believe that the auto space continues to remain buoyant. Also, in the two-wheeler segment, there will be a double-digit growth, anything between 12 per cent and 15 per cent. If this consumption booms across the hospitality industry, etc, then I don't see any reason why I should be bearish on the auto sector.
That doesn't mean that the stocks run 30% from here and then it is again a buy, but what I want to say is that we believe that there is going to be growth. But one needs to look at valuations once it starts outperforming the others by a huge margin.
We continue to remain optimistic on this sector.
How are you playing the steel space now both in terms of news flow and valuations at which these stocks stand?
I look more from a long-term perspective, so it is very difficult for a trader to play in the steel space on a daily basis, especially the commodity space. I would presume that one has to take a longer-term call based on what international prices are going to do and what the international demand-supply is going to be.
We like the steel space, especially the integrated steel players, the preferred pick being Tata Steel followed by Sail.
There have been sporadic rallies in stocks like Wipro, but we have not seen sustained outperformance from them. Going into the next earning season, what are you feeling about technology?
I think technology has actually underperformed the market, when the market moved up from 10,000 to 12,500. But with rupee-dollar exchange rate around Rs 46.50, I think the thought process on technology is doing much better than what it has anticipated.
So I would think these interest rate changes and the currency movements would continue to have this kind of a thought impact.
Probably one will see an increase in allocation of IT services stocks in portfolios. There has been a significant change in allocation of the portfolios across different funds. So we have seen a large number of increases in terms of retail, consumption, media and cement space.
All of these movements have happened at the expense of something like IT, on which people were generally overweight. So we may see a reversal of it. But with the current level of rupee, I think technology is much better option and larger stocks like Infosys Technologies, Satyam Computer Services, Wipro, etc would be a safer bet.
Where does oil stand after this entire correction?
One cannot buy these companies based on price earning, EPS or valuations today. One has to analyse that if the oil prices come down, are all these companies going to benefit? And that is the way to look at it; that's one part of it.
Second, look at companies like Chennai Petroleum Corporation. It was quoting at four times earnings. So given the current scenario, the amount of subsidy that needs to be given to these companies or subsidies that companies share with the government for supply in petrol, diesel, LPG and kerosene etc, the profits of these companies are not really what it should be. It has got a huge amount of uncertainty in terms of subsidies.
So across this sector, be it marketing, refining companies and even to a great extent, companies like ONGC, one has to take a call what is the biggest negative and what is the maximum downside that they can see.
If call on oil price is negative, then ONGC will be the one that people would be selling. But I do not see a downward trend or rather downside to these kinds of prices today, especially in the oil marketing companies. So marketing companies may not move up immediately, but I think its safer, the downward risk is very much limited in these stocks.
Cement companies have cut prices by about Rs 2 to 4 a bag. Would you take it in your stride because the rains have started and is it normal monsoon fair to see bit of easing off of prices or would this worry you?
This wouldn't worry me because this is something, which has been anticipated.
The 15-16 per cent growth that one saw in the previous quarter is something that is not sustainable. Especially when it is monsoon, one sees that the demand slow down and the prices had to move down. So I don't see it as any surprise.
How would you be positioned as an investor in Reliance, looking at its current business and its future businesses?
Let's look at the history of Reliance Industries. If one looks right from mid-1980, they had always talked about projects, which were always of high capex, and these projects had long gestations. You had the cash flows also supporting that kind of capex programme.
Today also, the existing cash flows in the current businesses will take care of those kinds of needs to a great extent. So I do not have any concerns on that side.
But the business outlay, etc that they have, is very positive. The way the Indian consumer is changing and the demand is growing, it has great potential and is a great business to be in.
Disclosures:
Our clients may have positions in many of the stocks that I discussed, but I do not.
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