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Speaking to CNBC-TV18, JP Sinha of Mangal Keshav said he does not see a knee-jerk reaction below 16,000. He added that if it happens, it is a good opportunity to buy. According to him, markets will stabilise in the range of 17,000.

Excerpts from CNBC-TV18’s exclusive interview with JP Sinha:

Q: What are your thoughts on Reliance Power? Where do you expect that stock to settle because there has been intense selling pressure on it in the past few days?

A: The listing has been quite disappointing. We have reached a level of Rs 350, which is looking quite decent. We are clearly seeing the sentiments are very weak and risk awareness is becoming much higher. So, to that extent, even if it sustains at this level, it is a good level to look for long-term investment.

Q: Did that fund rising have much to do with the valuations of the stock and this Rs 350 valuation call? Do you expect it to quiet down there?

A: The valuation at Rs 450 definitely looked stretched. Since most of the froth subsided, we are seeing that Rs 350 is a good level to enter from a long-term perspective.

I reiterate that in the short term, there could be some more weakness. But if the cash flow starts, you will start seeing strength. So, it is too early to comment on the valuation perspective and it is more comparable with the other companies within the same sector.

Q: How would net interest margins in the banking sector pan out?

A: We have a call of overweight on banking. I do not see any reason for stocks to react negatively from the current level. The valuation has already come to a level where it gives an opportunity of 20-30% upside.

On net interest margin, there could be some traction. But in the last 3-4 quarters, there has been a marginal improvement in NIMs. It is now well over 3%. So, given 5-6 basis points, overall, margin contraction would not have a major impact on the overall balance sheet.

Net-net, we are seeing that if there is a decrease in interest rates to some extent, either by banks or by the Central Bank, that will have a positive impact on the overall credit growth. The overall credit growth has come down to 22-23% from the level of 30%.

So, a marginal contraction will not have a negative impact. On the other hand, we are seeing a healthy balance sheet. They are in a position to continue with more than 25% growth rates. Overall, well-capitalised banks are in a better position to go ahead with.

Q: Where is this market headed? Is it a possibility that we would get closer to 15,000-15,500 levels? Do you think the next move from the market might be on the way up?

A: I was proven wrong when I made a statement that 17,000 is a fair level and the market moved all the way to 21,000. We still maintain that same stance of 17,000. We are slightly below it.

Euphoria had taken it a long way on the upside. Fear can take it to a slightly lower level. My sense is that we are stabilising at a close level and another 500-600 points may not be ruled out.

But then, valuations have become very attractive. We are already seeing that in the leading counters. The leaders in the pack are coming to a valuation where it becomes attractive.

I do not really see a knee jerk reaction below 16,000 or so. If that happens, it is a good opportunity to buy. We will stabilise in the range of 17,000. Once again, the fear could take it to a slightly lower level. But 17,000 is a very fair level for the market to stabilize, assuming global concerns remain at the current level and do not worsen.

Q: What would you do with a sector like infrastructure? Would you buy or avoid?

A: It looks very attractive purely on valuations. Given the sentiments, I would wait for sometime. But infrastructure is something on which we are very positive. The order book continues to be there and we are not seeing pressure on margins. In terms of growth or earnings, visibility is very high.

In a very short term, the pressure could be there on this particular sector, along with real estate. I think it’ is a good sector to invest in.

Q: How would you look at the fundamentals at this juncture? Would you say that banking stocks and the metal space are the plays where cherry picking can be done even at current levels or would you rather wait for lows?

A: I do not think one should wait for lowest or low point of the price. One should start investing at the current level because it has already corrected 20-30% in most cases, particularly for banks. If you look at banks like SBI, ICICI, HDFC and Axis Bank, valuations are much more attractive than two-months back. So, it is time to start investing. We may have extended buying rather than in one go. Otherwise, it is a good time to invest.

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

Source: Moneycontrol.com