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Brace for more new mkt highs in days to come: Raamdeo

After a recent stumble, Indian shares carved out fresh all-time highs in trade today (October 30), thanks to a 1 percent gain for benchmarks Nifty and Sensex.

Commenting the market’s move, Raamdeo Agrawal, joint managing director, Motilal Oswal, said the recent selling for foreign investors had abated and this had pushed markets higher.

He added that the market may have further steam left. “I believe that we will see many more highs in the days to come,” he told CNBC-TV18 in a discussion with Senthil Chengalvarayan, Sonia Shenoy and Anuj Singhal.

Seconding the view, Adrian Mowat of JPMorgan said that India was a story of improving fundamentals, which attracted foreign investors to the country’s markets.

“In constrast [to other BRIC peers], China has seen weak macro data, Russia is reeling under weak energy prices while Brazil has witnessed dashed hopes of change after the recent reelection of Dilma Rousseff,” Mowat said.

He added that investors should consider giving a cyclical tilt to their portfolios as such sectors benefit from a decline in energy prices, more policy clarity and restarting of stalled project since the election of the new government.

However, Ajay Srivastava of Dimensions Consulting, struck a cautious note saying the Indian market was now turning expensive “with bad companies also rallying in the upmove” and added that cyclical stocks carry higher risk.

“Clearing leverage for all these firms will take time. There is no equity money for them,” he said, referring to the renewed interest in stocks of real estate and construction sectors after the government eased FDI norms “In many cases, the total asset value is less than the total debt they have.”

Srivastava added that the best approach would still be to approach high quality names – leaders in each sector.

“The big companies are the best placed to deliver the best results in the next one, two or four quarters,” he said.

Below is the edited transcript of the interviews on CNBC-TV18.

Anuj: Are you surprised by the pace of the market rally from the recent correction or would you say this is par for course in a strong bull market?

Agrawal: I didn’t know that this is going to happen so immediately but I am not surprised, it had to happen and we are going to see many more new highs. It is just that so many things have happened positively, whether it is oil decline or deregulation of diesel and now Maruti’s given policy change has added new fire to all the auto stocks particularly in Maruti itself. So these small things add up and in any case foreigners were selling which has stopped.

So everything is coming together to take the market to new high but let us not believe that this is the first new highs. We are going to see many new highs in the days to come.

Sonia: What are the stocks that you would look at right now with a fresh accumulation strategy?

Agrawal: The only new sector which has become very interesting is oil and gas companies. After deregulation and government’s determination that they will appoint very capable CEOs in the banks we are yet to see the change of CEOs in the banks but the quality of management change in the public sector banks and other entities would be one of the most bullish things to happen if they deliver as per the promise.

Senthil: We have all being saying that Foreign Institutional Investors (FIIs) are buying but who else is buying and what is being bought?

Agrawal: Basically you have two buckets, one is FII and second is domestic and domestics were bullish for last 6-7 months. We are seeing their continuous influence on the market. For the last 15-20 days FIIs selling little bit of selling for 15-20 days that has kept the market a little lower or it allowed the market to correct in a healthy fashion. At the moment they slowed down in terms of their selling market has taken off again. So now both the segment wants to buy.

Anuj: This really has been a strong run. We had a 5 percent correction but the pull back has been even stronger than that. What does that tell you about the state of the market?

Srivastava: What it tells me about the state of the market of course is that good things are happening. Raamdeo just telling us that the developments have been positive but the key thing again, the trigger is again back to the point of FIIs. You saw the slackness in the market when FIIs were absent from the market, when FIIs came to buy in the last 48 hours we have seen a huge upsurge.

But having said that let us be also very clear that this is an expensive market. Yes, Sonia rightly says that the good companies are being rewarded and the bad companies are also going up in the same market. So when you are buying in a market like this you have got to be careful what you are buying because along with the good ones the bad ones are also riding the wave and that is which causes most grief.

If you look at the last correction some of the stocks that have gone down by 40-50 percent and have not recovered and let us take a  Reliance Infra for instance. It went down from Rs 800 to Rs 550, it never recovered and now it is running at about Rs 580-590.

So yes, the rally is good, stocks like  Maruti and oil companies are good but you also have to ensure that you don’t catch the froth instead of the good quality stuff in the market.

Sonia: What will you do now in terms of stock buying. You had mentioned earlier that you should be looking at a bottom up approach, a good quality names approach. So would you pick up these names which have done well in this earnings season or is it sectoral leaders that you would pick up now?

Srivastava: Both possible choices would coincide in terms of the sectoral leaders would be the kind of companies which have done well by and large. So, if you look at say, auto space, sectoral leader Maruti has done the best among the lot. If you look at pharma space you will see  Ranbaxy has come back as a replay which will affect  Sun Pharma price that should do better. I shall believe that you will get a better return on a capital from the bigger stocks, the better plays because their ability to get results are going to be lot better.

You have already seen things like Raymond ,  Crompton which have given sub-par results. Their share price may still rise today but these are not the companies which are going to give you the next quarters or next six months or next year’s performance. So unfortunately the game is still where it is that we are back to the big players, we are back to the same themes. The only new theme, it is not new anymore, of course is oil marketing companies which have been a good play since the last three months or four months and so on.

And if you go sector by sector you will find that top two players of the sector have done the best in the sector barring Fast-moving consumer goods (FMCG) where of course  Hindustan Lever kind of disappointed but in all other sectors the top players have been the winners in the market.

Sonia: Is this a good time to be even looking at beaten down sectors like construction, real estate etc?

Mowat: Absolutely, you need to increase cyclical exposure in your portfolio, be rotating into some of the laggards. Up until recently the move we have seen in the market is being external sectors like IT, some of the more defensive sectors and we have seen weakness in more leverage company cyclicals. So we would certainly be looking to rotate into that.

As you go into 2015 calendar year you will start to get the benefit of the decline in energy prices coming through. You have a policy clarity that wasn’t in place 12 months ago and you should begin to see some of the stalled projects having an effect on the economy. So, that is definitely the environment to belong, cyclicals.

Anuj: But what is the overall call now on India. This year it has really been about India, there is no point even talking about other BRIC countries, B & R are totally gone in that. From here on would you expect Indian market to attract incremental money as it gets more expensive or would you expect some kind of consolidation?

Mowat: The fact that India is a story of improving fundamentals against a backdrop within the BRIC where people have a lot of concern about the actual underlying macro data in China. You have got potential financial isolation occurring through Russia as well as Russia dealing with a significantly weaker energy price.

And then in Brazil there was a hope for change in policy but the incumbent president was re-elected by a very narrow margin and so the sort of optimism around Brazil has faded. That just means that people are more interested in the Indian story and I do expect that India continues to receive good flows but it is also very important to look at what is happening to deposit rates today.

The deposit rates are coming down, that is important for the equity market, because high fixed deposit rates was a strong competition for equity mutual funds and we have also seen a lot of redemption of equity related insurance products in the last couple of years. These headwinds for the market are coming to the end turning into tailwinds.

So I actually think it is going to be Indian savings that are driving this market higher and foreigners are going to remain very interested in it because it does have some very good relative fundamentals.

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