Ambareesh Baliga of Karvy Stock Broking doubts if the Nifty will be able to cross the 4700-4725 mark very decisively in September. He sees no conviction in the market beyond the said levels. He believes the markets to remain in the range of4,400 to 4,700.Midcaps, according to Baliga, will play around if in the 4,400-4,700 range. However, he advices, “If you are going out of this range either you short the largecaps and midcaps at the lower level or at the higher level get into the largecaps.”
Here is a verbatim transcript of the exclusive interview with Ambareesh Baliga on CNBC-TV18. Also watch the accompanying video.
Q: What do you think how will the month of September pan out—which side of it will we come out after just twiddling in a range for the last few days?
A: I doubt whether in the month of September we will be able to cross this 4,700-4,725 mark very decisively because on the last three occasions it has tried to do that desperately. But it has not happened. So clearly there is no conviction in the market beyond those levels and we clearly see selling coming at those levels, so I doubt whether the market would cross those levels in the next couple of weeks.
There aren’t too many triggers as such and the next trigger should be the Q2 results on which again there is a question mark because in Q1 we were surprised with the better margins and better results. But I think it was because of lower operational cost. I don’t know as to how much these operational costs can be pushed down this quarter. So I think the Q2 results may not really have any surprises. So I see the markets in the possible this range of 4,400 to 4,700.
Q: What about midcaps—is that headed for a deep fall you think or you are still buying into the midcap rally?
A: In case the broader index is in the range of around 4,350-4,400 to around 4,700-4,725, I think it is the midcaps which will play around. We have seen the midcaps performing really well in the past couple of weeks and that could continue. But in case the market breaks this level of 4,350-4,400 then I suppose the midcaps can fall much steeper than the overall market. At the same time in case we see the markets breaking out beyond 4,700-4,725, which I don’t think will happen, I suppose again you’ll have the midcaps underperforming. At that point of time whether the market moves towards the 5,000 levels, it will be the largecaps which will lead the whole market. So again if we are in a range, you play in the midcaps. If you are going out of this range either you short the largecaps and midcaps at the lower level or at the higher level get into the largecaps.
Q: What about NHPC? What's been the experience for high net worth individuals (HNIs) and retail and what are you telling them to do now?
A: As far as retail is concerned I don’t think it was a terrible experience. It opened lower than what was expected but still made some profits. But when it comes to HNIs especially the ones who were leveraged, I think they have lost out quite badly and this is the second time they’re losing out. They had lost out on Adani, they’re losing out here. So I think going ahead the leveraged applications could see a drop especially when we are talking of Oil India. There could be a drop as far as the leverage applications are concerned.
A: Absolutely not at these levels. If oil was at around USD 40-45 per barrel, yes we could have thought of looking at these stocks but surely not at USD 70 per barrel when we are expecting the oil to head towards USD 75-80 per barrel at least over the next two to three months. There is no way one should be investing in this. This rally will end with Oil India IPO.
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Q: Any thoughts on Reliance Communications?
A: I suppose valuation-wise it is clearly cheaper. There is some headroom for this and surely these are the triggers which could possibly take it up some more from here. We could see levels of around Rs 293-300 possibly. But clearly this business is becoming more of a commodity business going ahead and clearly the margins would be under pressure if you’re talking of the next two to three years. If you look at what are the announcements which have come from Tatas like STD calls beyond three minutes would be a flat fee. So clearly your margins would be under pressure for most of them going ahead.
Q: How to play sugar now from hereon?
A: We still have an extremely cautious view on sugar stocks. The market has already discounted the fact that most of the sugar companies will have bumper margins which we don’t think will happen because clearly against the sugarcane price of around Rs 150-175 last year this year it should be around Rs 200-225 which means your cost of production is going up from Rs 19-20 to around Rs 26 and at the same time government is doing everything to basically push down the sugar prices or create some pressure on the sugar prices. So I don’t think the margins will be as great as what the market is expecting it to be. Surely it will be much better than last year. Most of the inventory gains have been reported in the last quarter. Some of that inventory gains will be reported in this quarter but I think going ahead it is the margins which will play because of which I suppose if one is looking at November-December you’ll have pressure on these sugar stocks. So this is a great time to exit these stocks.
Q: How would you approach Maytas now after the news flow of the last few days?
A: I think at these levels I don’t see too much of an upside. At least for a while it should be in this range but then the real action could actually start possibly one-year down the line because I don’t think IL&FS will hold on to this for too long. I think they’ll put it back on track and then again put it on the block. That’s the time one could have a major trigger for the stock.
Q: Last time around you talked about this Mantralaya project going a bit awry for Indiabulls Real Estate. What are you hearing – has it been shelved or is just that it is on hold right now because the stock has been coming off?
A: I don’t have any further information on that – this is what I read in the media that there is a question mark on that which means on hold for the time being. So I think that led to a certain amount of disappointment as far as this stock is concerned and at the same time it had run up quite a lot so it was just cooling off.
Q: At Rs 37 what would you tell your clients to do on NHPC?
A: Retail clients in fact we are asking them to just hold on because the downside we see for NHPC is around Rs 31-32. Although the valuation-wise I would say it is more closer to Rs 25-26 but looking at the share price not the valuation I don’t think it will really go below Rs 31-32 levels. So looking at that sort of a downside does not make sense for these guys to exit because most of the PSU stocks over a period of time have given good returns. So for retail investor it makes sense in just holding on to the stock.
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