UR Bhat of Dalton Capital expects the Nifty to be rangebound between 7700 and 8200 over the next 6-12 months, even as the market is in the midst of a multi-year bull run.
In an interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy, he said there was a new-found confidence among Indian corporates.
He is bullish on private sector banks and engineering companies. He recommends staying away from PSU banks as they are saddled with bad loans and do not have enough capital.
Below is the verbatim transcript of the interview:
Q: Up until 7,800, people were talking about caution and a deep correction. At 8,000 people are not talking about so much caution, Anuj Singhal was telling us that the market is relatively less hedged, is this a right stance to take, is it that the economy is genuinely turning or for the moment is it preparing for a big shock?
A: The indications that things are getting better whether it is the gross domestic product (GDP) growth rate that we saw for Q1 or even exports that we saw, inflation is at least not rising, probably mildly following the balance of payments is very good. The fiscal deficit also seems to be under control, everything seems to be falling in place plus also the corporate India has new enthusiasm, new confidence that things are changing and they are just short of announcing new investment plans, which is the ultimate test for a bull market. All that is happening.
Also, the fact is that the last quarter corporate results are also not bad except a couple of them. Most of them were reasonably outright. So there is a new found confidence that India is in the move and that is what is taking the market up and nothing suggests that there needs to be a U-turn on this. Therefore, market should start going up but may not be at one shot. It will stabilise over here, maybe a small correction here and there but it is on the path to probably 8,200 pretty soon.
Q: There is new found confidence in the entire cyclical basket as well, be it capital goods, be it banks etc. What are the stocks or what are the sectors that you would now be recommending to investors who have still not piled on to cyclicals?
A: In cyclicals, one needs to take a look at the engineering companies, the EPC contractors — of course, the private sector banks are certainly going to be there plus in the old sort of defensives, pharmaceutical seems to be a good place but in the cylical space, EPC, engineering, infrastructure, metals and mining are worth watching for sometime but if the Supreme Court (SC) gives the right cues, that should look quite good. These are the sort of sectors one needs to be bullish on if one believes that this new-found confidence will take us further.
Q: Did you read the early arguments made by the Attorney General in the court? They have requested the court for 46 blocks to be not de-allocated, the rest they don’t mind and also they have suggested that a penalty would be in order. Do you think that things are getting sorted out without too much of a disruption?
A: Absolutely, we need to put a lid on to all these controversies. Some wrongs might have been done but they can always be addressed through penalties and that is what they are suggesting. Plus, if you say everything is illegal and you cancel all the allocations then we start all over again, what happens to projects that are already half way down there and have already started producing? That is a very sensible thing that the Attorney General has suggested and if there is a new auction other than those which are already under production or very close to production, that is the right way to go. That is a very sensible approach to this problem, which has been hanging for too long.
Q: The other big internal we have this morning is the way the auto sales have picked up especially the medium and heavy commercial vehicle (MHCV) sales. Within that space, what would your preference be now considering that so many of the stocks have already rallied so much?
A: They have rallied but these are the early indications that the economy is getting back into shape especially the HCVs because the two-wheelers and the passenger cars are doing well for quite sometime now but the HCV is the best indicator that there is confidence to buy new commercial vehicles. So I think they are the ones which are doing better, you can see the growth numbers, the stocks which are able to grow their sales much faster, they are the ones you need to be invested in. Valuation is always an argument, the best stocks you will never get cheap but if you have that confidence that the market is going to give you good returns, they are the stocks incrementally that will give you even better returns. Therefore, this valuation is not exactly great argument when in bull markets and we are in one.