Gaurang Shan, Assistant Vice President, Geojit BNP Paribas Financial Services sees today’s big jump in the markets as a sign of volatility; he expects 400-500 points up and down movements in the Sensex in the days to come. Here is what he told ET Now this afternoon:
You would probably not be surprised with the fact that we bounce back but the extent of the uptake that we are seeing on the index, does that surprise you?
The sell off in the last almost six to seven trading sessions was far to deep and the fact that all ratios were giving indicators of being in oversold zone, one had a feeling that this morning that with support coming in from the global cues the markets would definitely bounce back. But, to wipe out the entire loss that we had seen yesterday I think this is a little bit surprising and that gives me reason to believe that from here on what we are into is a lot of volatility. This volatility will possibly increase as you move on further from here in the month of November and also given the fact that for last three or four consecutive sessions we are having the FII figures on the negative side on larger scale. So, you will have those days when you go down almost 400-500 points on the Sensex, may be about 150-200 points on this Nifty and on a flip day you will have some kind of recovery coming in so we will have a volatile situation at least for another fortnight or so.
And what would be the levels that you would be watching out for on the index within that volatility?
What we have seen as of yesterday 4500 to 4550 would be the initial level and I think 4480 is the level that one would possibly really crucially watch out for. It’s going to be a very crucial level and at the same time I do not think that you will go and have 4900 & 5100 very easily or 5000 very easily. I think we would possibly at the most trade on the higher side at 4800-4850 or so, it is going to be a range of around about 350-400 odd points as of now.
Suzlon is one for sure which is down 5% in today’s trade as well. What do you do with these stocks and sectors which were beaten down on every rise, would you sell them again in the hope that they will go down or would you do some bottom fishing?
Firstly let me speak about Suzlon since we have a buy report on it from one and a half–two years kind of time horizon. Yes, there were concerns with the lot of fundamentals of the company and now with the high debt equity that concern is going to be a little bit deeper. But, I think one needs to look at little bit beyond one month-two months kind of time horizon and that’s the reason why we have a buy recommendation from at least one and a half two years kind of time frame. We also believe that this debt equity problem which hangs on the balance sheet will possibly be taken care of. I really do not know because you have sold off quite heavily and since we have a buy report definitely as the disclosure our clients would be holding the position, so I do not think we would possibly sell off. We have recommended hold on Suzlon this morning itself and we have recommended it a buy with the first target being roundabout Rs. 85 to Rs. 90, the second one could be roundabout Rs 125.
What about Reliance?
I guess with the kind of developments that we have seen on the Supreme Court case with the judge pulling back because of personal reasons and of course given the kind of bounce back that Reliance has shown, I would still firmly believe that in a short to medium term it depends upon which way the case goes and in which particular party of the two gets benefited. At the same time I think if one has to be really comfortable getting invested in Reliance from a long-term point of view I think sub 1850 would be a very comfortable level.
You said that we might see some kind of a bounce back till level of 4800 levels but you do not see the Nifty going back to those 5000 levels, would you sell into the market at that 4800 level?
From a short to medium term definitely. So yes I am a firm believer that if you have a very-very short term view, may be about 15 days or 20 days, I think at 4800-4850 my recommendation would be to book profits. Let us not forget the inflows that we have seen as far as the FIIs are concerned were quite significant to the levels we have seen in 2008 and I think still there will be a little bit of selling pressure from the FIIs. So, I do not think that you can expect 4900, 5000, or 5100 immediately in the near future.
On the short term to medium term basis how is IT looking to you especially the bigger ones like Infosys, Wipro?
I was quite presently surprised and I was a little bit negative on IT till the time we saw the numbers come out. But, after that I think the numbers do speak for themselves. But, I would be a little bit choosy, I think TCS would possibly warrant an immediate attention with the kind of numbers. Infosys, I believe that with the kind of rally that Infosys has got, life beyond 2400-2450 looks a little bit difficult as of now. For Wipro your time horizon needs to be a little bit lengthier than what you would give to others. My immediate choice would be TCS and yes we do see that a re-rating is possible with the turnaround that has been visible.
Where do you think this particular telecom tariff war might just continue till and how will this impact these telecom stocks. Do you see any downgrades happening?
Most of the brokerage houses have kind of downgrades already and we also have negative rating on the telecom sector as of now. This morning when I also read about a news article about termination charges being reduced further -which means again there is going to be lesser revenues coming into these telecom companies – and again ARPUs are not really contributing, value added services have not taken off very well with the customers. So that again being a second vertical does not really add into the revenues. So, we feel that we are the lowest in the tariff in the entire globe and if this continues then we will possibly see much more downgrades coming in. So I do not see that there will be any reason that you should do any kind of value buying or bottom fishing in telecom. Sell on every rise.
How does one look at the sugar stocks especially the UP based mills because the delay would probably jack up the prices but the sugar mills do not have cane to crush and therefore not take advantage of this?
That is going to be a crucial thing for the government to balance. On one hand you have the necessity of a common man who consumes this and on the other side you have the farmers and the sugar manufacturers who are crying for kind of a better pricing. Yes, the formula that has been spoken about needs to be possibly understood very well before being implemented and by the virtue it being controlled commodity I do not thing that there is going to be a much headroom as far as revising the sugar prices on the higher side is concerned. That is going to be restricted to a great extent. So if I have given a choice in the entire sugar pack there would be only three stocks that I would be looking at. Renuka, Bajaj Hindustan and EID Parry, these would be the three preferences that I would possibly keep in the sugar pack.
IT companies are bagging those orders, would it translate into gains for midcap and small cap IT as well?
Yes, we do have selective picks in the mid and small IT pack. To start off Mphasis-BFL, Rolta, Polaris some of what we really look at, Patni is there on the buy side. Among the smaller ones maybe something like Moser Baer definitely looks a long term bet but given the kind of pricing pressure and of course even if you do get the contracts from the overseas market, the managements of the most of the frontline and midcap IT companies have been vocal enough to say that revenues are going to be difficult to generate going forward from hereon, but we see it is an aberration. The situation is going to improve one quarter down the line. So from that point of view one can definitely do some amount of buying in the front end midcap and small cap IT.
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