Suresh Mahadevan, Head-Research, UBS Securities said that he was still positive about the Indian markets despite the major fall it saw post budget. He said he had a March 2010 target of 16,750 on the Sensex, which means another 20% kind of upside from here. However, he said he had now become defensive on portfolio holdings.
Here is a verbatim transcript of the exclusive interview with Suresh Mahadevan on CNBC-TV18.
Q: Has the market priced in or priced out the budget and what kind of working range do you have going now?
A: My view is that we have lost probably a signalling opportunity to foreign investors but other than that if you dig deep into the budget, there are a lot of good things coming out. From a signalling perspective, I think what people were not happy about was firstly the fiscal deficit number. Secondly, the lack of roadmap on public sector undertaking (PSU) divestment which was clarified yesterday was going to be more divestment and obviously for some reason the market was expecting an increase in the foreign direct investors (FDI) and foreign institutional investors (FII) limit on insurance. But the key thing is that the PSU divestment or the increase in FDI/FII limits can come through. The budget is just one day, so my sense is that we are still positive on the market but as you may know, we have been positive since October from 8,000 level. Obviously at 14,500-15,000 we are a lot less positive than we were at 8,000 but we still have a March 2010 target of 16,750 which means another 20% kind of upside from here.
So we are still positively biased, but from portfolio perspective, we have taken a lot of data out of the portfolio and become a little more defensive than we were because when we were in October and March, even in March we were quite pro-cyclical and now we have reduced that pro-cyclical stand a little bit.
Q: On the point you were making about lessening up beta in your portfolio, walk us through your three key Nifty exclusions if you were to do that?
A: If you look at our underweight sectors in a modern portfolio, I think we have metals which was one of the big overweights earlier, now it is an underweight mostly because the stocks have done so well. Engineering is another name, something like a Larsen & Toubro (L&T) or Bharat Heavy Electricals Ltd (BHEL) has done so well that we are now underweight on that sector. The other big underweight is petrochemical which is Reliance Industries (RIL) which I talked about earlier why we have a negative view. So, these three would be the biggest underweights from our portfolio perspective.
Q: What is your top pick from autos right now and what is the price target you are working with over there?
A: We like Maruti in the auto space and primarily I think it is a play on rural India as well as the increase in – it is probably that you should see that it is a consumer discretionary kind of a sector and we also think it is quite a high-quality company with fairly conservative accounting norm. So the earnings are probably understated because of their accelerated depreciation etc. So we think that is a stock which could rerate further from here. I think our price target is another 15-20% higher than where the stock is today after yesterday’s Rs 1,100 level it closed at. So I think clearly that is our top pick in the automobile sector.
Q: Would you look at this slip in the market as a buying opportunity? We have lost about 12-13% in the index from the peak, would you go in and accumulate now or do you think you will get better opportunities in the foreseeable future?
A: I will definitely urge investors to buy on weakness. I think one can start building in a position because just because of budget which can affect sentiment and liquidity in the short-term, the fundamentals are still pretty bright. We will see an economic recovery, we will see earnings growth, so definitely I think it is time to look at buying at weakness. Having said that, can the market go to 12,500 or 13,000? Yes, maybe. But when you can never get the precise bottom but this is a zone where I would urge investors to buy rather than sell very clearly.
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