Don’t see much panic in markets before US polls, downside limited: Jagannadham Thunuguntla, SMC Capitals

In an interview with ET Now, Jagannadham Thunuguntla, Equity Head, SMC Capitals, shares his views on the markets. Excerpts:

ET Now: There is this broad-based euphoria in the global markets that there will be a positive ruling coming out of Germany. We are also seeing the Indian markets react positively to that. If the ruling goes against what the markets have been expecting, what will happen with the Indian equities then?

Jagannadham Thunuguntla: I do not expect much panic in the markets before the US elections in November. And even through there may not be a big time rally, but a positive momentum will be ensured around September and October. Therefore, the downsides are fairly limited at this point, and unless one or two decent policy decisions are taken in India (like a diesel price hike), the market will get stuck in a range.

ET Now: Let us talk about the consumption stocks that have been a fairly good play for the Indian markets. Would you be betting on any of these names or do you think the valuations are too expensive?

Jagannadham Thunuguntla: Valuations are indeed expensive, but (ironically) the fund managers are not left with many choices as most of the sectors are underperforming. That being said, this particular strategy may backfire if there is a sudden correction in some stocks.

ET Now: Within the capital good space, we have seen L&T hold up pretty well. How would you view some of the other names, like Crompton Greaves or Thermax? Would you say that there is value in some of those counters for you to be buying?

Jagannadham Thunuguntla: In this segment, L&T is obviously a better bet. I am expecting, especially in case of BHEL, at least 10%-15% correction from this point. The share price of BHEL has already corrected a lot, but I expect at least 10% correction from here. If an investor is keen on capital goods, he should buy into L&T or maybe Crompton Greaves.
ET Now: We have seen a lot of flavour pickup into some of the midcap IT names. Would you be buying into any of these?

Jagannadham Thunuguntla: Hexaware is definitely looking like a good bet and so is Rolta India, which is trading at a very low valuation of 3.5 PE multiple and 0.5 price to book. And, even though Rolta has had issues of FCCBs, but the FCCB related burden is over now, and I am expecting the stock to rally all the way to Rs 90-95.

ET Now: There has been so much policy flip-flop when it comes to FDI in the aviation sector but now hopes seem to have emerged again. Would you look at this as a positive move or would you stay away from this sector given the other fundamental problems that it is plagued with?

Jagannadham Thunuguntla: Aviation is a very tough space to take a fundamental call on. As famously said by Richard Branson, “The easiest way to become a millionaire is to start off a billionaire and go into the airline business.” As of now, there is no point in getting into that. However, you can always make some trading bets on Jet Airways and SpiceJet.

ET Now: What about the defensives story? Do you think that -- given companies like Unilever are now going to focus on innovation -- distribution is going to be a big focal point and you can see a lot of growth emerging in some of these names?

Jagannadham Thunuguntla: Valuations in this segment are extremely expensive right now. Like I said before, fund managers are not left with many options to choose from and have to park their money in these stocks at this point. As long as the momentum is on, it is better to enjoy the rally and then shift the funds somewhere else.