See pressure on the market till election outcome: Nischal Maheshwari, Edelweiss Securities

The institution side also, you have started seeing that some of the midcaps, especially the domestic mutual funds, have started accumulating. In the month of December, you had seen a few funds which got raised especially around midcaps and they raised close to 1000 to 1500 crore. All that money also has got deployed in the last six weeks.

ET Now: We have been seeing some uptick coming in in terms of FII activity and inflows, but what is the reality on the ground? Are these fresh allocations, is it long only money coming in or do you think they are just having a very wait on the sidelines neutral sort of approach till the elections?

Nischal Maheshwari: I do not see the excitement as yet coming from the hedge funds and obviously the number of hedge funds, which we used to have in late 2008-2009s, are not there anyway. So hedge fund money is still not big. It is a long only money which was sitting on the side on underweight kind of a position. That money has actually started coming to India and that money has actually now gone from underweight to neutral.

ET Now: So what is that money chasing? Is it chasing the said outperformers, the likes of IT, pharma or do you think it is into the dark horses, the banks, capital goods?

Nischal Maheshwari: Still IT and pharma are their favourites. There is no doubt about it. We have seen a marked fall in interest as far as the FMCG stocks are concerned. So consumption is not strong with them. They are selectively looking at industrial stocks, banks, but very selectively and some midcaps also.


ET Now: There is a serious issue about Maruti and the kind of corporate governance standard that the company is following. So if the issue is serious, what explains the fact that for Maruti, the FII limit has hit 22%? The fact that the FII limit is hit 22% that explains the institutional investors are still interested in buying into Maruti?

Nischal Maheshwari: It is a very interesting situation. I totally take your point and we have been also very negative about that this is a third instance where Maruti is not showing concern for the minority shareholders, but simultaneously what has happened is Maruti has underperformed for the last two years as far as its performance is concerned and in the next two to three years the numbers are going to be pretty strong. So there is going to be recovery in the four wheelers in FY15 and FY16 on the back of economic recovery as well as possible interest rates cuts as and when it happens and that is why the numbers are going to be pretty strong for Maruti.

ET Now: So would you be keeping Dr Reddy’s on watch list now because of the geopolitical problem or you think these political or geopolitical problems are shortlived and if Dr Reddy’s declines, it is good time to buy it

Nischal Maheshwari: Yes, so if the geopolitical problems are shortlived, basically it gets over in the next one or two weeks or at most a month. I would not be really bothered about because the influence on Dr Reddy’s earnings would be max 2% to 3%. But if it gets prolonged, then I would be worried basically because then 10% to 12% of the business is coming from that territory that might have a larger impact on it. But having said that Dr Reddy’s is doing extremely well in its large market, which is the US, and has got a very strong pipeline out there. Domestically also they are doing pretty well. So those are actually the growth drivers for Dr Reddy’s.

ET Now: Is there a reason why Hindalco is outperforming Tata Steel or for that matter any other ferrous stocks?

Nischal Maheshwari: I do not see any reason for it to outperform given that the non-ferrous metals is still weaker than the ferrous side internationally, except for that they have got recently some approvals coming as far as their greenfield project is concerned. There has been one mine which has got recently allocated, the approvals have come to them for the bauxite reserve as well as coal and that is possibly what is driving the prices up. Otherwise also, valuation-wise it is pretty interesting and attractive. So some amount of bottom fishing may be happening in the stock.

ET Now: You have talked about accumulating capital goods stocks like Voltas and L&T. What is the rationale behind that?

Nischal Maheshwari: In both these cases basically we are seeing that the execution is improving on the ground. So, both of them basically have a very strong order book. So whether it is Larsen or Voltas, both of them has strong order book. Larsen in the domestic market, Voltas in the West Asian markets, so Saudi Arabia and all that. Both of them have a strong order book. What we have been lacking with them was the execution. So in the last two quarters we have seen execution improving and on the back of the execution improving basically we have seen that the margins have also started improving for both of them. They have shown for two quarters now improving margins, and the management when you speak to them has been indicating that the margins will continue to improve further up from here. So in that kind of a scenario, valuations were pretty cheap and the stock has just started showing sort of a fair value.

ET Now: What is the stance when it comes to the blue chip IT names?

Nischal Maheshwari: Definitely large caps. My preference still remains to be Infosys and Tech Mahindra in that order and then TCS. So no doubt, but see what has happened. The whole IT sector has definitely outperformed and done pretty well in the last one, one-and-a-half quarters. Now going ahead you have to look at it saying that 30-40% growth can come from smaller names, but very-very focused names. So something like Persistent which is big on digital technology, which is the future of the whole IT pack, that is where I would like to put my money in. Similarly Tech Mahindra also has indicated in its various forums that 25% of the business by 2016 would be coming from digital technology. So that is where I am putting my money in.