Share Bazaar News India

Dipan Mehta, Member, BSE & NSE, said the main contribution of the Budget could be in terms of improving the sentiment and confidence. "Even minor reductions in direct and indirect taxes can suddenly change the mood of investors and corporates. A good Budget and some thumping statements by the FM could resolve some issues relating to confidence. That could enable the market to hold these levels, perhaps a base could get created, and maybe then at higher levels we could see emergence of fresh buying, which has not been happening so far," he told CNBC-TV18.

Excerpts from CNBC-TV18's exclusive interview with Dipan Mehta:

Q: Does it seem that we have a got a bit of pre-Budget mood going or is it just short covering today?

A: It is more of short covering and lot of liquidity waiting on the sidelines also getting into the market, considering that global cues are positive. Confidence is gradually coming back into the market.

At the same time, the Budget will also have a role to play. It generally excites a lot of short-term traders. They will also be taking positions prior to the Budget. It is more to do with fresh liquidity coming in and short covering.

Q: What do you think the money is riding on right now? The fact that sentiment might make some kind recovery by the time we get to Friday or that the Budget will more or less be a positive event in the sense that even if it is neutral, it will be okay and out of the system?

A: The main contribution of the Budget could be in terms of improving the sentiment and confidence. Even minor reductions in direct and indirect taxes can suddenly change the mood of investors and corporates. A good Budget and some thumping statements by the FM could resolve some issues relating to confidence. That could enable the market to hold these levels, perhaps a base could get created, and maybe then at higher levels we could see emergence of fresh buying, which has not been happening so far.

So, it is more to do with softer aspects of the market rather than actual difference in dollar and rupee terms.

Q: At Rs 450, what would you do with Reliance Power?

A: Technicals suggests that it can go up another Rs 10-15. These are levels once should look at exiting. Again the strategy would be to try and spread out the sale of that stock and not just do it one shot today, because it is getting into some kind of momentum zone at this point of time. There is a chance that it could go closer to Rs 500. It is more to do with momentum, volumes, and trading activity than fundamentals.

Q: CBoP collapsed in trade today, even below the Rs 50 mark. How have you read the swap ratio that has come out for both banks?

A; It will be disappointing from CBoP point of view. May be shareholders over there could have got a raw deal. A bank like CBoP, which has delivered such fantastic performance over the past few quarters, has relatively clean balance sheet, and was growing at rates higher than the industry average, could have been able to extract little bit higher value. But then the deal is done and that is something the investors have to reconcile with.

So, the selling which we are seeing right now is more to do with sell on news kind of syndrome and not as much the fundamentals. At the end, both prices will quote at the ratio at which the merger has been decided.

In the long-term, a lot of analysts and we also feel that it will benefit the combined entity. HDFC Bank would at least be able to maintain 35-40% growth rates, which it has been able to deliver over the past several years. That is important because there were questions being raised on growth rates whether they were sustainable going forward or not.

Q: Did you have a chance to study the two new listings - Tulsi Extrusions or IRB Infra?

A: No, we have stayed away from both the IPOs. Similar business is available at more attractive valuations in the secondary market. Therefore, we would not cover them at all. Even at these levels, we maintain the view that in case of IRB Infra, which is the larger of the two, there are more interesting businesses that the company is engaged in and more value-added work than what they are in at this point of time. It is available at reasonable to rather attractive valuations and therefore we are staying away from them.

Q: What about OnMobile?

A: The story is extremely interesting and the space in which it is engaged is a high growth area. Going forward, a lot of revenues for the mobile telecom company should come from value-added services and this company exists in that particular space.

But the valuation over there is significantly higher than the other listed players who are engaged in similar businesses, like Tanla Solutions or some of the other companies engaged in telecom software products like Geodesic, Subex Systems or Megasoft. So, the business is great and it has a fantastic track record.

The valuation was higher than the peer group companies. Therefore, at these levels, we feel that investors could remain underweight or even exit out of the stock. Opportunities may come at lower levels.

Q: A lot of analysts voiced the grouse that the acquisition premium was more or less built into what CBoP was trading at. Do you think that is the case with most of these smaller private banks?

A: If you look at the entire spectrum, there are only two-three similar banks which could get acquired. What comes to my mind is DCB and maybe even Yes Bank could fall into that play. There are a host of old, private sector banks where there is no clear promoter group. The problem with the old private sector banks is that they are not deriving as much revenue from banking fees. The growth rates over there have been slow.

In new private sector banks there are only one-two which come to mind. Maybe in CBoP, which was a clear case of corporate action, the premium was built in. But in case of a lot of the other banks I do not think the premium has been built in. Even for Axis Bank, it is still trading at valuations which are close to its peer group like ICICI Bank or HDFC Bank.

Apart from this particular acquisition of private sector banks, we do not really see any such activity taking place at least in the near future. So, this kind of analysis is not really relevant at this point of time.

Q: When do you think trade on sugar will start settling down in any direction?

A: It is very difficult to make a guess at this point of time. They continue to bleed. Even for the March quarter, the results will not be that excited at all and the losses may persist.

But globally, sugar prices are at multi-month highs. Sooner than later, we should see an uptick in sugar prices in the domestic markets as well. If there is little bit of imbalance created in the supply as well, then we could see the entire cycle turning.

Whenever the first signs of a revival come in the sugar industry, we will see these stocks moving in a phenomenal manner. They could easily double in a fortnight or in a month’s time as well. That is the kind of lack of participation or short positions, which are there in this industry. So, if you are a contrarian player, sugar could be the industry for 2008 given that perhaps the worst is over for them.

Q: What is your own sense of the markets in the next series?

A: I am on the optimistic side. I think more than 5,400 is the likely scenario from our point of view. The reason for that is that we have adequate short positions in the futures market and that could be a trigger.

A lot of new fund offerings have been made and lot of mutual funds are sitting on cash. For insurance companies, the month of March is anyway good for collection because that is when the maximum premium does come in.

Some of the long-term FIIs may be interested in increasing their exposure. So, all these factors together kind of lead us to a more positive view in the next series.

Q: Is there anything that you would look at from the cement pack, with the Budget around the corner?

A: There is always a case for cement excise duty to come down, considering that is amongst the highest in the world. It is not ad valorem; it is based on the fixed rate. So, there could be some relief given to the cement industry over there.

At the same time, the cement companies are being faced with price increases. On the other hand, the government has been trying to control cement prices by persuading cement companies not to increase prices. So, there is a case over there. If cement prospects do look up, then some of the companies with large players especially are the best bets, like ACC, Gujarat Ambuja, and Jaiprakash Associates. Our disclosure is that we may have investments or recommendations on these stocks.

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

Source: Moneycontrol.com