Remain patient with LIC & ride out the volatility? Hemang Jani explains

“There is a high probability of a relief rally, but sustainability is something I am not very clear about,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL

What is your outlook on LIC -- just remain patient or ride it out?
Whenever the IPOs have fallen to their issue price and there is a significant correction to relook at the company in terms of entering a fresh one, we should wait for it to touch that IPO price and only then it would really make sense to enter.

Having said that, for those investors who are looking out for value names and where the downside is limited given that the issue itself was at an attractive price because of the market conditions and post that it has corrected quite sharply.


So this might present some opportunity to investors with a one- or two-year perspective but I would like to highlight that instead of buying it only because it has fallen, we could create a two-three stock basket for the insurance plays and have some allocation for LIC along with some of the private names. Going for ICICI Pru or HDFC Life would be far more sensible strategy rather than just buying the stock and averaging it down.

What is the view on Zee-Sony? They have not won any rights so far. Analysts believe they should continue existing in this low cost sustainable strategy?
Clearly the numbers are staggering. We have never heard of this kind of bids for digital or for the broadcast rights and both put together is somewhere close to Rs 50,000 crore. While we all may all get excited about these numbers, for the companies that are shelling out money for them, how balance-sheet wise, cash-flow wise the situation is going to pan out is something that we will have to watch out for.

Read Also: What is the good short, good long and a complete avoid in midcaps?

For Zee, our take was that the company has a cash of almost about Rs 18,000 to 19,000 crore on the books and they are generating about Rs 4,000 crore cash flow and if there are no major issues in terms of the merger with Sony, then at this price, it is looking quite compelling. I do not necessarily see this current development where they have not been able to get the right as a negative for them. Instead of doing that, they can continue to focus on core activity and the market would be far more comfortable with that. We have a positive view on Zee and it makes more sense from a short to medium-term perspective.

These days markets are so fickle that it is important to get the near term rather than the long term right. Do you think we are in for a bounce?
On the derivative side of the market, the FII are in aggressive short positions and the overall component is more than 90% which means that they are already positioned for this rate hike and the selling that we have seen points to that. So there is a possibility that once the event is out of the way, we might see a bit of a tactical bounce but the larger question is what sort of inflation data can one really have over the next few weeks and months?

That is far more important than just seeing some sort of a bounce back because in a bear market, we may have a very fast bounce which may appear very strong but if the overall backdrop is not very conducive then, they may not sustain and it may be far more painful for the investors to deal with. So yes, there is a high probability of a relief rally, but sustainability is something I am not very clear about.

What is the support for this market? You cannot just say stay away?
Though I am not a technical analyst, one point that I would like to make is that typically in a bear market, what is more important or significant to look at is whether the markets are able to move up and cross the resistance levels rather than looking out for support because many of the supports do not hold in a rapidly falling market. In this kind of a backdrop globally and the sell flows.

I think for any hint on the reversal or the sustainability of that, any important resistance being crossed, the market holding out there would be far more crucial and that is something that we should really keep in mind. Coming to what we are telling our clients to deal with in the current scenario is basically it would be very difficult to gauge exactly where the market will find support because index will have its own dynamics.

Stocks already have corrected quite a lot so in terms of valuations and the way the risk reward is panning out, things are looking better. We have identified pockets where we are saying that it makes sense to go for some investment in parts.

These pockets are auto, some of the IT services and banks are also extremely well placed. Just to give you a data point, the deposit rates have been hiked by 25 bps and the home loan rates are hiked by almost 100 bps in the last three weeks. That tells us that banks are going to be extremely well placed in this kind of a higher interest rate regime. Having seen this kind of a fall definitely makes a case for some investment in the banks.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)