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Market recovery is likely only post Diwali: Pankaj Pandey

Pankaj Pandey2-ICICIDirect-1200
Our sense is that probably 7,500 to 8,000 kinds of level is a decent level for anybody with risk appetite and one can look at dabbling in some of the tier I names.
How are you looking at the overall environment for the stock markets at a time like this? What is it that you are advising the investors?
We will continue to see sharp upticks and downticks depending on how the global event pans out. Also, there is a good amount of anxiety although the fear or volatility has sort of cooled off. What is yet not clear is the road to recovery and near-term earnings are looking at being disrupted. But in a time like this, it is a good time to upgrade to better balance sheet stock portfolios, which is what we have been suggesting because we are still not sure whether the market bottom has been made.

But our sense is that probably 7,500 to 8,000 kinds of level is a decent level for anybody with risk appetite and one can look at dabbling in some of the tier I names. So overall, volatility is going to remain for some period of time. Recovery at best could happen post Diwali; so till that time, since most of the stocks have corrected across spectrum, it is time to upgrade to better balance sheet stocks.

Out of the two-three comments which have come from financials—we have heard from HDFC Bank, Bajaj Finance, Kotak—where do you think the scope of damage is the maximum and the least?
If you look at, say for example, both Kotak and Bajaj Finance, they are trading three times the book value but for Bajaj Finance, although they do not classify their consumer durable book as unsecured, our sense is that they are going to take the maximum hit. So if you exclude that, 35% to 40% is the kind of unsecured book they would have and on this, we really do not have clarity.

So when mentioned that it is time to look at better balance sheet stocks, probably Kotak would stand out far more better given the fact that they have also benefited from the good deposit growth largely because of the YES Bank issue. And book wise also, they are relatively better off. So in financials again, focus has to be on banks which have got less proportion of unsecured books. NBFCs clearly as a space need to be avoided.

Where do you think ITC is headed because last week’s price action, especially what we saw in ITC on Thursday and Friday, was quite explosive?
Overall, consumption as a basket is coming out to be slightly better given the fact that the balance sheet on that side is pretty good. Another positive for ITC is that they have given clarity on the dividend payout ratios. What that implies is that probably the capital allocation towards intensive sectors like hotels and all will be lesser. So that is also helping the stock besides the lower valuation, which it has been trading at for quite some time.

When we are looking at metals, anything particular from a basket that you would be willing to look at more closely particularly in light of a changing trend?
We are sort of negative on metals. While we cannot rule out a technical bounce of about 20-30%, given the kind of crack we have seen, our sense is that if China is normalising, there is a good chance that they might up the export incentives, which again would imply that the prices could remain depressed, which is negative for Indian metal players.

So while there could be volume growth if the domestic economy recovers, I think the pricing pressure will still linger on. So given that, you can look at only a select few pockets where the leverage is a little less. So something like Hindustan Zinc, which controls the bulk of the value chain is something one can look at. Otherwise, in the metal side, most of the players are leveraged and that is where the challenge would lie. So besides technical bounce, we will not be sort of chasing metal as an entire pack.

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