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Speaking to CNBC-TV18, Amit Dalal of Amit Nalin Securities said that there has already been a correction of close to 1,200-1,400 points. He added that this correction has perhaps done its job and there might be a reversal in markets.

However, Dalal stated that the market does not seem to have the strength to go back and cross the pervious high, at least for another month.

Excerpts from CNBC-TV18’s exclusive interview with Amit Dalal:

Q: How do you see things panning out for the whole power space, as we get through the Reliance Power opening, closing and listing?

A: The Reliance Power issue has done exceedingly well. The collection numbers show that people are talking about a 100% premium on listing. So, I don’t think there is any concern over there.

One of the concerns that one may have is in the power stocks, which had gone up by the derivative of the Reliance Power issue itself. The stock has gone up almost 100% in the last quarter. One will not get earnings growth, from September to December, to make one feel confident that these valuations should perhaps go up from here or remain at these levels, for the next one year also.

It still remains a gestation period story and that could be one-downer for power stocks.

Q: How is Reliance Power different from that? How do you say there is no problem with Reliance Power?

A: I meant that in terms of the success of the issue. The valuation is something that was an expensive valuation, even at the time of the IPO. So, the people who have applied are fully aware of that. If there is a premium, then that is because it is a market story, which people are definitely confident about.

How to look at that relative to the rest of the power sector, is something that analysts will continue to discuss. But the reality is that there is demand at these levels.

Q: How are you feeling about the market now, after the last couple of days?

A: We had a very exuberant market from October onwards. We did a study on this and found that the market went up 36%. We had more than 600 companies, which had a turnover of less than Rs 10 crore giving us an average return of 143% in this period.

I have more numbers like this, which tell us that there was tremendous over exuberance in re-valuing stocks, irrespective of the fact whether we are doing a reality check or whether these companies can give us what we want. When the quarterly numbers start coming out, obviously the market is going to find that these things have not got the backbone that it needs for further interest.

That is why you are going to see more of a meltdown, in some of the small and midcap stocks, which are not warranted at current levels.

Q: Do you see more downside in the near-term? Do you think we are more or less done with this leg of the fall?

A: I think this leg has been pretty sharp. We have already seen a correction of close to 1,200-1,400 points. So, maybe this correction has perhaps done its job and we might see a reversal up.

But I don’t see the market having the strength to go back and cross the pervious high, at least for another month or so. The market will rally around because the next piece of good news is going to come from either Ben Bernanke or the RBI Governor.

The results are well discounted at current valuations. I do not think the results are something that will make a difference or give us any major surprises on the positive side.

The next round of IPOs or the next round of issuance is not there till the middle of February. Also the Budget is around that time. So, I think we are going to be in a restful period for a while.

Q: What about telecom? How do you look at Reliance Communications versus Bharti, after what has happened with their stock prices?

A: Definitely, with the regulator and what is happening with the court has a big effect on the shareprices of these stocks. Now that BSNL is also going to give an IPO and perhaps going to move into this space in a very big way, that is a completely new paradigm for looking at telecom as an industry, in terms of cost and revenue growth.

We are seeing a period where this sector is not going to give us the kind of growth, the kind of numbers and the capital appreciation, which we have seen in the past. We are going to see a period of consolidation for a while, especially when the largest of the companies start having such big conflicts with themselves. It is not a very good sign for the sector.

Q: Would you buy anything in metals, after the fall in the last few days?

A: I would perhaps look at Hindalco or a Nalco. But I am wary of industrial commodities for 2008. I completely concur with the global view that if there is going to be a slowdown and if China is going to start limiting its capacities based on pollution constraints, we have perhaps seen the best of prices for the underlying commodities.

I see tremendous speculation or the underlying fund allocations towards oil or any other industrial commodity. So, the pullback from these prices towards the downside can be pretty sharp too. I am a little wary on metals on the whole.

Q: Any thoughts on the other IPO that is closing today-Future Capital Holdings?

A: I am positive on that and think the group has an ability of putting business out of this on a growth path. They will be able to raise more money in the future. But if one is going to see a company which can come up with a hedge fund model for developing capital gains for itself, I think Future Capital can do it.

Q: We have been talking about the big paper that has opened right now. But there have actually been a lot of new listings in the past few days-Aries Agro and Precision Pipes. The most volatile is Burnpur Cements. Is there anything that you like from all these papers that has hit the market recently?

A: Honestly, I have not studied those three companies. I do find myself lost, as far as the IPO is concerned. There is tremendous demand for these new companies, which people have less familiarity with and valuations are higher than what their peers are quoting in the secondary market listed space.

They do very well in many cases and remain at very high valuations for periods of time. But unless one really studies any particular stock, I would be wary of the IPO market in such a bullish phase, that we are in right now.

Q: What is a good way to approach this market now?

A: I think the stocks you talked about little earlier-IDFC and IDBI and perhaps even some of the real estate stocks have not fallen a lot. One should remain with those stocks, which do not fall a lot in a correction.

You do not see both price and fundamental risk, when you see a correction in the market for such stocks. I think they will be the leaders again for the next rally. One should remain or even take buy positions when you see a correction there.

As the market goes higher and higher, even though there is exuberance in certain periods of time, we are going to find that the market will get narrower and narrower. It cannot be that you will have the next 10% rally with a wide market.

It is going to be a narrow market and one should remain with those stocks where market finds confidence, both in its numbers or perception. That becomes very clear in a period like today, where you have seen a sharp correction, in what type of stocks to buy.

Q: Do you track Petronet LNG? What is your take on numbers in this quarter?

A: The numbers are reasonable. They had an increase in capacity because they had changed their technology last year. Therefore, one saw another pipe starting in. Therefore, there was an increase in volume from the June-September quarter itself.

Now, they are going to have a huge increase in capacity, towards the end of 2008. That is when the next kicker will come. This problem does remain between the spot rate and the rate at which they able to sell here. So, the spot rates go up and the availability of spot becomes a problem. At current levels, it is fairly priced.

Q: What would your pick be, out of the whole brokerage clutches? There has been a lot said and done from many of those stocks. What do you like over there?

A: There is a bit of a personal touch over here, in terms of Motilal Oswal. It has got the full mix of business that one needs to invest in, if one is investing into a financial services firm. I think that company would be something to buy.

Q: Aside from all the valuation concerns, what would you do with Reliance Power. Would you subscribe?

A: I have not subscribed mainly because I do not think I will get any allotment. If I am going to get 0.5% allotment or 2% allotment, I don’t think there is much to be made in terms of capital gains there.

But considering the demand and the prospect of listing, an investor should make money. The retail market, if someone gets an allotment, they will make some money out of it.

Disclosure:
It is safe to assume that my clients and I may have an investment interest in the stocks/sectors discussed.

Source: Moneycontrol.com