Devesh Kumar, MD of Centrum Capital said two-wheelers will do well, though, passenger cars are under pressure, but HCVs will perform well. He told CNBC-TV18 that media may see a positive surprise, and he will look at stocks that have not participated yet.
He expects the worst to be over for sugar, and sugar may be a contrarians call.
In anticipation of a 'friendly Budget', he expects market to do well, both mid cap and frontline stocks. Interest rates will drop around 100-200 bps from here, he said.
Excerpts from CNBC-TV18's exclusive interview with Devesh Kumar.
What do you think, local momentum will continue to overwhelm and ignore any negative global cues for the next few weeks?
I agree with you that global situation is looking good, and if you look at the macro environment, growth momentum continues. With interest rates there is a speculation whether it will come down or not and the next four-eight weeks we'll see some softening taking place in interest rates environment itself. So India is looking different from the global dynamics, where indicators are not that good.
So you think it’s a fair expectation that prices will be at higher levels by the time the union budget is announced this time?
Preceding budget, the Finance Minister saying that tax collection is very good and there could be some tax relief also in the budget and he presenting the budget from a position of strength at a time where elections are two years away, it will be a friendly budget and it may generate a feel good factor. So in anticipation of that, market may do well and both midcap and headline stocks.
What is it that you expect to see from rates, do you expect them to plateau out for the rest of this year or show a definite downward tick? How would you approach the rate sensitives then?
Interest rates will drop from here and around 100-200 basis points looks very likely. So I will expect this to pan out over the next two months and that will set the pace for the rest of the year. This will boost all consumer demand and consumer-related segments; as far as large capital projects are concerned, they have not been getting affected by interest rates to that extent, because they have been using innovative means of finance; headline rates were less, but I feel that consumer demand and other segments will get a boost from this rate cut announcement, this will be positive.
As we speak, things have gotten a bit sticky with the currency again - it's almost 39.28 to the dollar for the rupee. What would you do with something like technology or even pharmaceuticals for the rest of this year?
When I talk to various agents in the market, on currency people are expecting it to hit 37 to 35 by year-end. So market is pricing in its worst fears and probably people are looking at 36-35.
All this and deterioration and environment for Indian exports will take longer than what is expected and will find that companies will spring a positive surprise.
So we are at the bottom of expectation at this point of time as far as software is concerned and their delivery will be better than what the anticipation is at this juncture. So auto components and software is where I look for companies able to handle this situation better and where any positive surprise on currency front will lead to further upside.
What about power as a space? How do you rate valuations there and your thoughts on the excitement around the Reliance Power IPO?
In case of Reliance Power, the market will look at the execution capability and the management gets a different rating altogether. But overall power generation space looks slightly overvalued at this juncture, whereas if you look at power-related companies such as transmission towers, cables and others, there still one can look at accumulating in those segments.
Where else do you think there are contrarian opportunities going into 2008? You spoke about auto components and maybe IT any other space which is been a relative underperformer which looks attractive?
In autos, two-wheelers will also do better than automobiles as a whole. Passenger cars will be under pressure, with launch of 80 new models as we are told, there will be pressure on all these companies, marketing expenses will go up. So that will be on the negative side.
HCV’s will perform better, but that is already priced, so their anticipation will translate into good performance. Media sector is one where we can have positive surprise, but again there one has to look at selective stocks. Couple of them have already run-up in anticipation of good times, so for this sector, one has to look at the ones who have not participated. In markets, there will be lot of opportunities to identify winners and markets, as it was last year will continue to be good overall giving around 15-20% returns on a broad market level and if stock picking is right then one can get bigger upsides.
Quick word on agro-commodities as well and whether you like sugar right now?
In case of sugar, the worst part is already over. Now how it translates into improvement, one has to see that. But sugar is going to be a contrarian call and hereon, there will be an improvement in the sector.
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