Long-term players must buy in this dipping mkt : Kotak Secs

Excerpts from CNBC-TV18's exclusive interview with R Venkat Subramanian:

Q: How do you map it from here? We went down to 12,800; we seem to be trying to hold that level. Do you think we will manage to work with that as a base?

A: We would like to think that we are in the process of making a bottom here but the news flow which has taken us this far, continues to remain as bad as it was. So from that point of view, it’s difficult and perhaps early to say that we have found a bottom. But in terms of long-term investment point of view; people who have been looking to come into India and have not been able to do in the last year because of valuations and the way the market is running up, I think at this point and from hereon, any downward fall in the market should represent a reasonable buying opportunity particularly if one is looking to invest in this country for the next two-three years because all the key teams that were driving us are reasonably long-term in nature and would remain in force. There will definitely be some challenges in some sectors. But by and large, the India story should continue to attract long-term investors and from that point of view, this could be a point where the long-term investor should start nibbling into the market. 

Q: Global markets have not been top of mind; the markets been worried about crude, politics, the internals and outflows. If the global market situation takes a turn for the worse, do you think July could shape up to be as bad a month as June?

A: Under the current sentiment that we are in, any bad news is going to get exaggerated in our own market fall and from that point of view, that’s a risk. But we need to keep in mind that the US market, particularly the economy itself, is in such disarray that to expect this market will not fall is being irrationally optimistic. I think that market is headed lower and the conditions there are significantly different from what we are experiencing in this part of the world and Asia in general.

So to that extent, the day to day fall in US would perhaps impact the sentiment here. But I think we need to keep in mind that we are two different economies; beyond a certain stage, the reason why the US market is struggling will not have any economic impact on the Indian markets. Yes, it will fall, but I think from hereon any serious fall should be a buying opportunity for long-term investors irrespective of whether US market rallies or not. 

Q: Would you be a buyer in some of the construction and infrastructure stories now?

A: In terms of the infrastructure space, the area that continues to be attractive from an investment point of view would be the companies that are in the process of creating the infrastructure and not the ones that are about to own them. So from that point of view, I think the visibility in the order book remains intact for most of them added recently that the National Highway Authority of India (NHAI) is quite confident in terms of their own roll-out plans and they have seen significant bids for most of their recent projects.

From an infrastructure space point of view, the ones who are not investing in owning the infrastructure, I would be interested in buying them. As for the companies bidding or owning those infrastructure projects, with the interest rates scenario turning completely against them, I think the economics will be quite unfavourable for them in sometime to come. So that is something that I would avoid. But the pure builders and the constructing companies will start looking attractive from here.   

Q: How do you see the market reacting to the political news this afternoon if the Left do indeed withdraw support? Do you expect any keen jerk or the market move ahead without any major fall you think?

A: I will be surprised if the market falls because of Left's proposal to withdraw support. First of all, one feels sorry for the Left; they have more or less been asked to withdraw than their own decision to withdraw. I recently read in one of the newspapers, that the ruling party has moved from politics of Karat to the politics of carrot. So they have taken care of the threat from Left and before Left could act on it. So I guess there shouldn’t be any impact on the market if Left withdraws support.

Q: What’s your sense? After such a big fall you would ordinarily expect some technical bounce but even that bounce is not coming. Why do you think?

A: I think the FII selling, which started beginning of last month, has not yet receded. Clearly they are the marginal sellers in the market and with the newsflow coming continuously negative, there is not much incentive for people who would normally trade for a bounce to venture in and take any big position because like you were saying sometime back that as soon as you buy the prices starts falling. The immediate reaction is to actually sell and get out.

So from a trader’s point of view, moves like these tend to increase the pace of the fall because they also become a seller as soon as they buy. So to that extent, I think it’s a function of when we will see some session of selling from the foreigners and that can perhaps come after the current quarter results, though I don’t expect that there will be any significant upward surprise in the results, but given the steepness of the fall that we have seen maybe we would find that the results aren’t that bad.

Q: What’s your take on sugar as a sector? It’s been relatively strong as a sector compared to the rest of the market. But how would you interpret this news?

A: The news from what I heard from the management is obviously bad, but I do not follow this sector closely, I do not think it’s a big part of the market. This sector is riddled with problem one way or the other; invariably either the mill owners or the farmers are always unhappy and as soon as one sees an up cycle, one has to immediately prepare for the down cycle because either the area under cultivation goes up or the sugarcane prices go up. I sometimes wonder why there is so much of following for this sector in the market which is hardly a large economic sector as far as the stock market is concerned. 

Disclosure:

It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.