Experts feel that the market may slightly pickup in the run up to the budget. In an interview to CNBC-TV18, Abhijit Chakraborty, Fortune Financial said that pre-Budget rally might take the Nifty to 5,600 and beyond.
He explained that people are still waiting for clarity before rushing to buy. However, Chakraborty does not see the Budget to be a game changer.
As an investment strategy, he advised buying L&T and BHEL. He added, "I would be confident and bet on the frontline infrastructure stocks right now ahead of the budget."
Below is a verbatim transcript of Abhijit Chakraborty’s interview with CNBC-TV18’s Udayan Mukherjee and Mitali Mukherjee.
CNBC-TV18: Do we have more legs to go post 5,500 on the Nifty or would you draw the line here?
Abhijit Chakraborty: The market is right now in a consolidating zone. After the initial bounce back that we have seen where at 5,200 levels, the market was offering a good amount of value. From there we have seen a decent amount of bounce back but going forward, for sometime to come we should see a consolidation phase in the market.
Probably, with the budget around the corner we can see a slight pickup or a pre-budget kind of a rally which can take the Nifty to 5,600 and beyond. Overall, people are not gushing into buy at these levels. They are still in a wait and watch mode and would expect certain clarity to come in the market before sustained buying can emerge in the market once again.
CNBC-TV18: Would you say it is unlikely that the market goes back to test those levels at sub 5,200?
Abhijit Chakraborty: That possibility is definitely not ruled out. We had fallen quite sharply and the market had to take a support somewhere. We have seen some value buying happening in certain sections of the market. Some kind of expectation is getting built into the market for the budget, but I don’t think the budget could be a significant trigger for the market going forward from here.
In the event that we see a rally from now onwards till the budget and if the budget disappoints, then there is a possibility of it coming back again. Apart from the domestic headwinds that we have been seeing, there are other geopolitical issues coming in from the Middle East and African countries which can also have a bearing in the short-term. I would still be in a wait and watch mode. There is a possibility that the market can once again comes back, but whether 5,200 or 5,300 remains to be seen.
CNBC-TV18: Do you expect the ADAG stocks to remain subdued or do you fear there could be another leg down for them?
Abhijit Chakraborty: Not only ADAG, but all the companies which have come under the purview of investigation by the investigating agencies, where there is any kind of corporate governance issues. Even a lot of midcap companies where the promoter’s shares are pledged but they are also facing a lot of pressure from that account.
I wouldn’t like to comment specifically on the ADAG group but we all are aware that there are certain corporate governance issues as well as an investigation which is going on. Let’s see how the investigations pan out for the entire sector and some specific companies, only then it will be possible to take a call on these stocks.
CNBC-TV18: The knock down seems to be in infrastructure, both in terms of margins outlook and pure performance as well. Are you buying anything there though after this correction?
Abhijit Chakraborty: Our view on infrastructure is that the year gone by but it has not been too good for them. The third and the fourth quarter, clearly, are going to see a pick up in execution. After the third quarter results, most of the frontline infrastructure companies have guided that they are hopeful and upbeat on order booking in the fourth quarter and speedier execution.
The fourth quarter numbers for frontline companies like L&T and BHEL are going to be good. Since they have not performed too well, in terms of market returns, I would be buying it into them.
The other thing I would like to focus on right now is the budget. It is becoming quite apparent that the private or the corporate capex spending is not taking off. It is in front of the government to once again be the leader in increasing spending in the economy. We can see some action weighted announcements and order bookings coming because of government agencies awarding the project. I would be confident and bet on the frontline infrastructure stocks right now.
CNBC-TV18: How would you approach Mahindra Satyam now, post its earnings and after what you heard from the management?
Abhijit Chakraborty: The stock definitely has made a bottom. What was delaying the performance of the stock in the market was the restatement of its accounts, clarity on future business plans, after the last quarter results which have been an improvement and the management giving guidance as to the timeframe of it getting merged.
As mentioned by the management there are several triggers currently in the company which can be used and utilized to improve the margins as well as the topline and the synergies between the group companies can also start to flow in. At these levels, there is not much to be lost in this company and from a longer-term perspective one can look to build positions in the stock.
CNBC-TV18: There is quite a bit of capital infusion happening in many of the public sector bank names. Anything you like there?
Abhijit Chakraborty: The banks to watch out for in the public sector space would be UCO Bank. The change in the top management is something to be very positive about and the infusion of capital would ensure that expansion continues to grow the book. Central Bank of India is another stock where I feel there is value at the current valuation. The bank has done exceedingly well in the last couple of quarters.
Overall, in the banking space, I feel that one should be looking to build positions in the frontline private sector banks, especially, because what we are seeing is credit growth coming back. This is one of the reasons for the banks falling and margin contraction fears getting overplayed as we have seen in the third quarter. Most of the banks have increased their rates and the margin contraction is going to be less than what was initially feared. Given the risk reward situation in terms of valuation that has happened in this sector, it makes sense to start buying the frontline banks, especially, in the private space.
CNBC-TV18: Yesterday, the Tata Steel stock was strong, what did you make of the earnings and what do you think the stock can do from here?
Abhijit Chakraborty: We are quite positive on Tata Steel for the next couple of quarters. The domestic operations in this quarter have been very good but what was slightly subdued was the Corus performance at the EBITDA level which suffered mainly because of the higher raw material costs.
What is heartening to note is between December end and January, there has been a price increase of about $150-160 effected by Corus, the impact of which will be coming in the fourth quarter. The company has said they have about 80-90 days of inventory of coking coal at a lower cost of about $200. The fourth quarter numbers are going to be substantially better. Corus, which we put in at an EBITDA of $25, could actually be doing about $40-45. For the next couple of quarters, Corus is going to really perform well.
CNBC-TV18: One other stock that went through a really bad phase and then pulled back sharply is Jain Irrigation, do you track that?
Abhijit Chakraborty: I am not tracking that but the company in the market, reacted very severely, once it announced its diversification into non-core businesses like NBFC etc. Though, from the management perspective, it is going to be strengthening its core business but the investor community would be taken aback and would like to see how this new business foray is actually shaping up before the stock can regain its lost story.
CNBC-TV18: What kind of probability would you attach to the prospect of the market rediscovering its uptrend post the budget as it takes out the 200 DMA and gets into a 5,600-6,200 kind of range again?
Abhijit Chakraborty: The possibility of the market breaking into a fresh rally is limited right now as the budget exercise is going to be a big challenge for the government. The question is how does the government tackle the huge deficit situation and what is going to be the stance between inflation and growth? It is not going to be an easy exercise and some of the hopes of corporate India might get belied.
I am not very optimistic of the market taking a fresh rally post the budget but it is almost a consensus trade right now that this pull back is just a pullback and won’t sustain and is likely to see it coming back. The market almost always surprises and behaves against the consensus.
On the macro factors, the factors which took the market down, we are going to see some improvement, whether it is inflation, IIP or the fiscal deficit which can be addressed by the government in the budget. If we see some improvement incrementally on the macro issues and even corporate earnings downgrades have not been to the extent that was initially feared, I feel the market can perhaps take support or bottom out maybe at higher levels than what the market has been fearing.
CNBC-TV18: How do you think the market responds to Mahindra Satyam?
Abhijit Chakraborty: This is what puts the issue behind the stock right now. From that perspective, it will be positive. With the new management, what we have seen them doing is one by one they are addressing all issues and putting them to rest. This is a good development for the company because this is one issue which was hanging on the stock and is now done away with.
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