RBI policy, budget to drive market in near term: Avinnash Gorakssakar
"In all probability, looking at the kind of inflation numbers which came in yesterday, my sense is a 25 bps cut is definitely expected."
The two key events in the broader market that we will be watching out for is the policy meet at the end of this month as well as the budget. Do you think that they could potentially keep the momentum for the Indian markets intact?
Yes, these are the key market drivers going forward. Till the time these events do not unfold, the markets would probably remain in a very close range and for the markets to move above the 6100 level, the first trigger would be the policy on the 29th. In all probability looking at the kind of inflation numbers which came in yesterday, my sense is a 25 bps cut is definitely expected and, going forward, if the budget actually delivers more on the positive side and is not a populist budget, that is something which the market would clearly like and be a good positive surprise. So the budget would be the second big trigger and after that the markets could get further re-rated.
It is positive momentum all the way for TCS post the stellar set of numbers. You have got a lot of brokerages also which have upgraded the counter from a sell to a buy. They have raised the target price as well. Do you think that all of the good news has now been priced into TCS and would you now look at some of the midcap names as well, the likes of Hexaware which was showing very smart momentum today?
Actually in terms of valuations my guess is clearly TCS valuations look definitely fair to a slightly expensive. Now if you look at near-term FY14 valuations, clearly the kind of visibility shown by TCS and the kind of market expectations people had they have clearly outperformed them.
But on a price point of view, incremental upside would definitely be limited from now on. Clearly Hexaware, especially KPIT Cummins from the small cap space, would be interesting to watch because clearly there the price movement is yet to catch up and probably there is some more money to be made on the table considering that the base value is smaller.
What is your view on the pharmaceutical pack because most of the analysts expect that with strong growth in the US as well as emerging markets, their favourable currencies, those will be some of the key drivers and you can see a good outperformance here. Do you agree?
Actually it would be a stock-specific call, in terms of the currency favourable movement and in terms of the US markets stocks typically like a Lupin or a Dr Reddy or for that reason even Ipca Laboratories from the small cap space. These are the stocks for which this quarter would be a very good quarter. In fact, you could also look at Cipla. Cipla is also going to show strong margin enhancement, good top line growth. So I would say these companies would be clear outperformers in the Q3 season.
How about the real estate sector because yesterday we did see DLF getting re-rated by one of the brokerage houses where the brokerage house has suddenly turned overweight on that stock. Would you say that your view on the real estate pack in general has begun changing?
At a very moderate level I think that real estate as a pack would definitely catch the momentum considering the fact that the rate cut benefit would definitely flow to these companies, but within the real estate companies I would still put my bets on some value plays like Oberoi Realty or Godrej Properties.
Clearly DLF seems to be more of a speculative kind of momentum trade. If one really wants to put money on the table for some value which could unfold in the real estate sector, then quality plays like Oberoi Realty and Godrej Properties could definitely be looked at.
In this quarter there could possibly be a little bit of margin pressure for most of the cement majors and also for the smaller cement companies. We have been hearing that cement prices in this quarter have actually softened a bit, but broadly going forward if one takes a longer-term call, I would say that once the macro numbers improve and the corporate capex cycle kicks in, cement as a sector would definitely do well. Within this quarter our pick would be UltraTech. We feel that despite the kind of negative headwinds, UltraTech should show pretty good numbers. So, UltraTech could definitely be a good buy on declines.
How are you positioning yourself then in the oil and gas sector and what are your expectations from Reliance on Friday?
My guess is Reliance’s quarter numbers would be definitely better than those in Q2, although the gross refining margins in this quarter are going to be under pressure. But clearly on a YoY basis, a 10% to 12% increase in the profitability is expected in this quarter.
The key trigger for Reliance would be the status on the KG gas issue on the regulatory side and more importantly what actually comes up on the telecom business because that has been a business which the market is keenly awaiting from a long time and official announcement from the management. So broadly the expectations are slightly moderate, but clearly the stock would remain range-bound. I am not expecting any big firework from the results.
What are your top trading ideas? Wuld you be betting on large caps and some select midcaps?
In midcaps, we still continue to like Ipca Laboratories, not only from the rupee currency point of view but from the domestic business point of view. We feel that in this quarter the company should benefit significantly, especially in its mainline vertical, that is the anti-malarial space. My sense is probably one could see a 20%-22% growth in the bottom line and clearly from here on also upside of around 15%-16% is possible.
In the large cap space, Zee Tele in the media space is expected to ride high on the consumption theme, more importantly from digitisation which is in its first phase. The second phase is going to be even more aggressive and clearly Zee is an integrated player with typically cable as well as broadcasting kind of revenues. So, both from a subscription as well as from advertising business vertical point of view, Zee Tele could show a positive surprise.