Avoid volatile sectors over next yr: Centrum Capital

Devesh Kumar, MD of Centrum Capital said that he will not bet of banking sector reforms because unions are strong there. He said, “Right now, one must not forget that since the previous Union Budget, the economy is in election gear and nuclear deal has become important towards end of fourth year of government. This becomes an election issue when they go to electorate and on that there is anonymity.”

He advises that in the next 12-months one has to look at sectors, which will not be very volatile. He said that in view of interest rate scenario, one should avoid sectors wherever consumer buying is based on borrowings and therefore automobiles and a couple of that category will be ruled out.

Excerpts from CNBC-TV18’s exclusive interview with Devesh Kumar:

Q: Do you expect banking reforms to happen. Would you buy banking stocks on the basis of such reform expectation?

A: I will not be buying stocks on expectation of banking sector reforms but because they look cheap and have been hammered a lot. I will not bet of banking sector reforms because unions are strong there. Right now, one must not forget that since previous Union Budget the economy is in election gear and nuclear deal has become important towards end of fourth year of government. This becomes an election issue when they go to electorate and on that there is anonymity.

In banking, insurance sector, one does something to attract protest and with 20 channels reporting, all this becomes a bad headline. Any reform, which creates a bad headline, will not be carried forward. So the easier ones, like reducing government holdings in certain Public Sector Undertaking (PSUs) from 90% to 80% or 76% is possible. Any reform, which attracts criticism, will be kept for post election period. Market is anticipating that all the things which did not happen in four years and two months will happen in next ten months which is more bullish than what real situation will be.   

Q: Since you are looking at the banking space now. How much more upside would you give from current levels to stocks that are seeing some buying interest?

A: In short-term, around 15% upside maybe there but as we were discussing we are in an election year. Therefore, in case some measures are announced where banking sector has to take a hit, it has to pass all that and it doesn’t take a hit because it is coming from government’s side. There could be some bad news further, right now if you take a longer-term view; the entire market is there to buy. If you take a shorter-term view, then do not bet on any reforms helping any sector.  

Q: How much of a leg do you give this rally at a heavyweight Sensex level and in any specific sector? 

A: This current rally is because of a mix of two factors. One is local; where we have about four-months more for elections and second is crude prices have come down globally. In next 12-months one has to look at sectors, which will not be very volatile. In view of interest rate scenario, currently we should avoid wherever consumer buying is based on borrowings and therefore automobiles and a couple of that category will be ruled out.

People may come down to two-wheeler level in certain segments and scooters and two-wheelers will not be affected. In FMCG, a larger part of your disposable income is available with you because you are not borrowing and paying EMIs. Therefore, FMCG companies may find that this has improved and in inflationary situation FMCG companies do better. So selectively, one can buy FMCG companies.

Q: We are getting eccentric kind of news from the capital goods space. The Index of Industrial Production (IIP) numbers are showing that the growth has fallen to 2%, the numbers are presenting a mixed picture. Seimens did badly now has done well, order book in future is a concern. BHEL margins were under pressure but they say, it will not continue. What do you make of this space?

A: If a quarter is bad in capital goods and project Engineering, Procurement and Construction(EPC) companies then there is bunching in next quarter.  So some amount of soothing should be done. If a company is working for NTPC then chances of fluctuations are much limited. BHEL seems to be the one where one will bet in this environment. Large construction activity is slowing down and capital goods sector is feeling a pressure. So, these numbers looks good because power sector and particularly all NTPC’s projects are going on.