Jaideep Goswami of HDFC Securities believes wait and watch is the best policy in this market environment. Both from trading angle as well as from investment perspective, he advises investors to stick to quality stocks and buy more of frontline stocks.
Sounding bullish on capital goods and FMCG sectors, Goswami says, "There is good value in some of the frontline stocks in capital goods or FMCG. These are the sectors, which may continue to perform going forward."
Excerpts from CNBC-TV18's exclusive interview with Jaideep Goswami:
What have you read into a 400-point knock yesterday, which is pulling back a bit today? What do you expect to see?
Yesterday's knock was more because of the market trying to re-adjust itself in the wake of what we saw in the previous week, namely a sharp rally in our market on the backdrop of a largely flattish Asian market performance.
So this reversion has played its part yesterday, as part of the sell off that we have seen. Investors are obviously not sanguine about the near-term outlook of the market and probably are looking for opportunities to book some profit. That is going to set up the trend in the run-up to this Fed rate hike. Probably the market will take a broader direction after the rate hike is behind us.
Would you look at some of the midcap steel stocks and banking stocks?
In general terms, in a rising interest rates scenario and particularly when the risk appetite of investors has gone down considerably, midcap banking stocks do not attract strong buying interest. So that is one underlying fundamental factor for these stocks.
People are more comfortable buying State Bank of India or some of the other private sector frontline banks. So in those circumstances, we expect continued underperformance from some of these midcap PSU banks.
What is the call on steel now?
Very difficult to comment. Obviously, today's news was a bit positive for integrated steel manufacturers.
We have a positive outlook on Sesa Goa. There is a possibility of them posting strong earnings in the current year. Also, that stock is available at reasonable valuations at present.
One word on the FMCG counters like ITC. Would you still buy it?
We continue to have a positive outlook for the sector, ITC in particular. Some of the business engines that the company has set up are doing fine.
In this market, the two fundamentals factors that are going to act as tailwinds for ITC's flight to quality are stock with high returns and a cash surplus kind of business environment.
So those factors will basically see ITC attracting a premium over some of the peer group stocks, which are growing at a slower rate. So we are positive on the outlook for ITC at the present moment.
Have you taken a look at VSNL?
On
What is that you expect to see post the Fed meeting?
I think the broad momentum of the market is more or less out and after the strong rally that we have seen, the market is going to look forward to other fundamental triggers, namely the results season.
Obviously, market participants are not in any big hurry to come and buy, they would like to take there time. So in those circumstances, we expect the market to remain in a range of 9600 to 10200.
Any thoughts on the capital goods space? Have any reached the valuations that you now find attractive?
Probably we have to take into account the valuation premium at which some of the MNC stocks are trading such as cements, ABB etc. My personal favourite continues to be BHEL, at around Rs 1750 level. With positive news flow, one can look at BHEL as one of the investment ideas.
Going forward, I am quite positive about this sector. If the market weakness continues, this may be one sector, where we expect more buying to come in.
How do you like FMCG as a sector, ITC and Hindustan Lever in particular?
Between Hindustan Lever and ITC, our personal favourite is ITC for the simple reason that its growth outlook seems stronger. The kind of returns that have been generated as well as the cash surplus situation that ITC has, lends a lot of credibility to its valuations and going forward, also its price performance. So we continue to favour ITC over HLL.
With today's closing, what will you advice here on?
I think wait and watch is the best policy in this market environment. Obviously we have to get the Fed hike out of our way. Near term risk may still remain. More importantly, we are concerned about the lack of price performance in midcap sector.
So investors are well advised to stick to quality stocks and buy more of frontline stocks, both from trading angle as well as from investment perspective.
There is good value in some of the frontline stocks in capital goods or FMCG. These are the sectors, which may continue to perform going forward.
But we cannot rule out some kind of a near-term weakness in the broader market. Investors should wait for that type of opportunity before buying into this market. This momentum is out of our way and there are too many factors, which can impinge on the price performance of stocks. One has to take a call very cautiously in this market.
Any disclosures?
As a broking firm, we continue to advise our clients on all of these stocks. So I will be an interested party in these stocks.
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