Markets consolidating, positive on IT, PSU Banks; FMCG at peak valuation: BRICS Securities

Sonam Udasi, Co-head of Research at Brics Securities says that this is a stock pickers market and a bottom up approach is required. Here is what he told ET Now

What do you make of market movement today, you have seen huge amounts of nervousness, is that how you would read it?

I am reading it as a consolidation move really. There is a weekend ahead. Also the fact that there will be some amount of profit taking, though technicals chartists will tell you that there is a resistance at the Nifty levels of 5200 and all that. Our sense is largely geared towards bullishness over the medium term.


And IT as a pack this morning doing better than the rest, is that a space that should once again start to see buying?

Yes, I would assume that. Also there have been positive statements made by Infosys in the past week, saying that they are seeing the demand outlook improving, pricing pressure easing, so that should mould well for the large caps. From our perspective the valuations are not too expensive especially for the large caps if the growth outlook comes back.


What do you make of the weakness in aviation, last five days have been strong, some profit booking and more upside from here or this is it?

Frankly on aviation as a house we continue to be largely bearish simply because it is too much dependent on the policy and the crude and there is no predictability in earning. So one quarter you will probably do well. You do not know what the next quarter is going to bring, so essentially as a sector we are bearish on it.


How are you reading into the pharma pack companies like Fortis Healthcare, Cipla, Cadila?

The large caps have had a fair bit of good run largely on anticipation that India will see some amount of M&A or some amount of offshoring if I may call it to the European and the American market. From our standpoint at this juncture, Cadila looks very interesting simply because there is a valuation gap that is available to you.

We have a house view which is buy on that. Also on Fortis Healthcare we like the space. The only thing is that you will have to take a longer term call of two three years. It is essentially a good story but it may take some time to pan out.


How are you looking at the banking space especially in concern with ICICI Bank, Axis Bank, HDFC Bank not fairing too well in trade today?

We are more bullish on the PSU space right now. We think that the private sector banks have run up quite a bit in the recent times but we do not see them correcting more than 5 or 10% in the near term. We have an overall positive view on ICICI Bank with a one year view.


In the metal space if we just look at the last one month we have seen the metals run up quite a bit. In fact even in the last three months it has been a best performer, are you looking at any specific stocks in that space?

Apart from the guys who have the backend, stocks like Sesa Goa or Hindustan Zinc which are on the raw materials side essentially, we are generally bearish on the metals. The final product what you may call a category within the metals space.


Do you like at this point the classic defensive play, now that we are sitting at markets that look at least set for consolidation?

I do not buy into that argument of defensives right now. Whether it is FMCG today or pharma, they are near their peak valuations. Especially the large caps nobody is less than 23 times 25 times FY11 earnings. Only in pharma you have some amount of breathing space.

The only thing is pharma is not a classic defensive because there is unpredictability of earnings especially on the API’s side and the formulation sides in export. So if there is a correction this time then everything will correct together. They may correct a little less than what most anticipate, that’s all.


In light of that what are you recommending right now, are you going long on certain stocks?

We are telling investors to have a bottom up approach. It is a stock pickers market, there are valuation gaps, whether it is in healthcare, whether it is in FMCG, whether it is in metals. I mean it is a stock pickers market right now.

We are generally bullish on the power capex cycle, generally bullish on the companies which are operating on the infrastructure space whether it is the equipment people or the constructions people or the guys who are into water or transport, any one of those because we see significant order book flowing in from the next quarter onwards.