Mkts to see sharp spurt in near-term: Edelweiss Cap

Q: What have you made of this big bounce that’s coming into some of the banking stocks because things have not eased up on the rate scenario neither has there in the bond market? Would you be a buyer in anything in the banking lot?

A: This was very much expected and this is what we have put out in our note to clients. Once one sees this kind of a sharp correction in crude oil price it was given that the interest rate sensitive sectors which have been beaten out of shape would be the ones to gain the most in this kind of a technical bounce back lead by short covering. Therefore banks, real estate are the two sectors where there would be sharpest amount of upside in this uptake. Within that, we would be more positive on the private banks like ICICI Bank and Axis Bank. Even in Public Sector Undertaking (PSU) banks, State Bank of India and Union Bank are great value offering from the current levels.

Q: What’s the best play in the infrastructure space for you? If you just leave out the L&T and BHEL what else would you bark up now for this technical pullback?

A:  Stocks like Adani Enterprises and Lanco Infratech are going to participate in this bounce back because of the correction that they have seen. But from a more fundamental perspective, I am not so gung-ho on the infrastructure or the asset creators in the current space because they are going to hurt on two accounts; in the rise of input cost as well as the squeeze in the Return on Earnings (ROEs) because of the higher interest rate costs. Talking about purely trading opportunity then the ones with high beta and beaten down stocks like Reliance Infra, Lanco, Adani would be the ones who would gain sharply.

Q: From the rate sensitive the greatest concern on earnings and margin erosion this time is the entire auto space. How would you approach that sector?

A: I would continue to avoid the auto space not only because of the fact that there has been an interest rate hike which is going to impact the month but there are two other concerns. One is the impact of the increase in the raw material prices and second, the availability of credit. That is by far a larger issue in case of the auto companies, which is going to impact demand. Though it is rate sensitive and rate sensitive are doing well right now I would stay away from the auto stocks.