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Stay invested, but choose your stocks wisely: Experts

Snapping three days of negative move, the benchmark indices managed to clock marginal gains amid consolidation on Friday. The Sensex reclaimed 27000, while the Nifty too climbed above 8100 mark.

Overall the week was good for the market with sectors like banks, autos, and midcap index buzzing with activity. So, is this still a buy on dips market or now would your start to get a bit cautious at higher levels? Market expert Anand Tandon and CK Narayan, MD, Growth Avenues, discuss the same.

Below is the transcript of Anand Tandon and CK Narayan’s interview with Sonia Shenoy and Anuj Singhal of CNBC-TV18.

Sonia: Your take…

Tandon: There are no dips in the market right now. It is just a buy market and so far there has not been anything to induce any fear. That said, I did hear Anuj mention that it is getting a little flaky perhaps because of that you cannot sustain a 1 percent move per day for too long and not begin to feel jittery. It is not perhaps yet at the level where you begin to want to run but it is certainly a level where at least in the smaller cap companies you need to be a little careful about the reasons you are buying the stock and be comfortable with fact that you are willing to hold them just in case things to do turn sour though there doesn’t seem to be anything right now to particularly induce that fear.

Anuj: What is your sense, is the overall texture of the market giving you an indication that a correction is around the corner or would you say that maybe a bit of a consolidation and then another breakout? In short how would you approach trade now especially on the Nifty and the Bank Nifty?

Narayan: I think this market has been a classic example of that old saying of the market that more money has been lost waiting for a correction than has actually been lost during a correction. People have various words to describe it and most people are actually waiting for crash in the market.

However, here is a market which has now trotted on till middle of September and the maximum correction we have got is about 3-4 percent on the index. No doubt when the index drops 3-4 percent individual stocks do drop about 8-10 percent or thereabouts but then that is part for the course. So, one should just give up this expectation of a correction and if one is avoiding getting into the market just because there is a fear of a correction then you are missing out the boat week after week.

You said it right Anuj sometime ago when you were referring to the sustained move in the small cap. We should respect what the market is saying because in its wisdom it just wants to keep posting higher levels. Now it is we who are expecting a 5-10 percent reaction or a crash depending on where you are on the curve. However, none of that is coming.

So, what you need is definitely to be a bit circumspect about stock choices. However, staying away from the market has really not worked. I don’t think there is any reason to still stay away. You can be a little more alert with your positions but more certainly I would say we have to be in this market; there is no question of staying away from it.

Anuj: What is happening with global markets because we have seen crude come down to USD 97-98 per barrel or so and that has benefited Indian markets but on the other hand we have seen quite a bit of strength in the dollar and we are very close to the FOMC meeting as well. Do you think global markets could pose a bit of risk to this market?

Tandon: Eventually I think that is where the risk will come from if it does. There is a little bit too much of sanguinity build up in the market now increasingly in India but certainly in the global markets.

There are many areas which could be of concern especially the fact that eurozone is still bleeding, the fact that there could potentially be a hiccup next week in terms of the Scotland issue. Of course it doesn’t seem to affect the market directly but there would be some upsets in that part of the world.

The fact of the matter is that the employment ratio is still not looking good in large parts of euro land. US itself is not that particular strong. The political situation remains weak. So, all those are stories which should be concerning the market but currently are not.

Therefore you need to stop worrying about it and as CK Narayan said you have to be invested, the only question is that be careful about where you are investing and don’t get carried away too much just because the last stock that you just figured out has moved up 5 percent.

Sonia: The sector that moved the most last week was the PSU banking space. So, Bank of Baroda (BoB),  Punjab National Bank (PNB),  State Bank of India (SBI) were all up about 4-7 percent last week. Within this space do you have any favourites or any stocks that could still see incremental gains next week?

Narayan: There has been a mix of two things for their upward movement. One is of course that the news that in all these banks, the government will shed equity and they will get recapitalised, etc. What this has led to is predominantly short covering in these banks because PSU banks where the favourites for traders to use as hedging vehicles because they were into a sustained downtrend.

Within that space the entire range of stocks is seen to be moving but if you ask me to pick some favourites, I will pick the ones with the maximum amount of higher beta within that and therein I would probably pick a  Canara Bank and a  Union Bank and perhaps Bank of Baroda as a trading vehicle.

However, as a class these are moving because of big amount of short covering. There is an expectation but this news is just out and it is going to be weeks and months before we see any kind of ink drying up on all these announcements. I think the market is having a knee-jerk reaction; one shouldn’t read in too much into it and become gung-ho on PSU stocks. They are kind of witnessing a small up trend, play it for that; that’s about it.

Sonia: What about you, if you had to pick a couple of themes or rather one or two themes that investors could play for the next three to six months, what would be on top of your mind because we have seen a lot of sectoral churn in the last fortnight or so; sometimes it is midcap tyre stocks, sometimes its pharmaceutical stocks, so, any fresh ideas that you would want to give us?

Tandon: There are two broad themes one can look at which perhaps has not yet been fully discounted. One is the fact that global commodity prices are falling and are likely to continue to fall. Therefore consumers of commodities would be benefited which can in the entire range of for example auto companies – ancillaries we have already seen many of them move and quite spectacularly but most equipment manufacturers and things like that would benefit a lot in terms of the manufacturing cost.

On the other side, the recent news that we have seen where the government is saying that the NHAI orders will now be on an EPC basis, in my view is good news for a lot of construction companies. There is no company which has the kind of balance sheet required to take up these on a BOT basis and we have already seen that the BOT contracts tend to come back and hit you in the face when there is interest rate volatility.

However, EPC side is far easier to ensure that you have a certain margin and given the aggressiveness with which NHAI seems to be wanting to put out orders those companies which too have scope to take them on and the management to execute will likely benefit.

You also have to remember that there is still the north-south corridor which is due to come in and therefore those themes will slowly play out which will include the truck manufacturers, the companies which are in containerisation business, courier companies and so on. So, those are some of the broad themes one can look at which can happen in the near-term.

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