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Speaking to CNBC-TV18, BSE & NSE Member, Dipan Mehta said that the market recovery is a slow process. He said, “So long as markets trade in this range for a few more trading sessions, gradually confidence will come back and then we’ll see a lot more investors waiting in the sidelines, committing more of their funds.”

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

Q: Good largecap movement but volumes are only 4,300 crore - what’s the undertone of this market you think?

A: I think if you discuss the volumes aspect, one needs to consider that lot of traders in the futures market are no longer actively trading or have curtailed their activity significantly. So that explains the low volume and the fact remains that delivery-based volumes have not fallen-off as much as the non-delivery or the speculative volumes.

This is perfectly fine - at the end of the day, we want delivery volumes to remain stable and gradually increase. Having said that, the undertone is gradually becoming stronger and stronger and lot of players are getting in the sidelines are now finally in the position or in the process of committing power of the cash into the equity market and this is all part of building the confidence and building the strength to enter this market.

We have heard voices and on the whole, it does appears that valuations as well as the fundamentals are more or less intact. But it’s just a question of trying to time the market, based on whether the correction was more or less over or not. I think the move, which has come over the past 3-4 trading sessions clearly suggests that the worst is over. Of course, this is based on present information. And maybe these are good levels to try and rebuild a portfolio; atleast increase the exposure to equities.

Q: What’s you take on Future Capital - would you that at Rs 900 plus?

A: No, I would like to avoid it at this point of time - similar businesses with similar growth rates are available far cheaper and with the correction even more cheaper, I guess. So the focus should be more over there, it was a highly priced issue and the fact that it's trading at premium by itself, is quite surprising.

Q: How much upside do you see from these levels because we have been making these sporadic moves but we are not able to make a significant headway beyond that 5,500 kind of level for the Nifty. Do you think this time we will clear that hurdle or we’ll just to and fro in the range?

A: I think we’ll do to and fro in a range - that’s perfectly fine. If the market shoots up very rapidly or quickly, again we’ll have lot of froth building up and again we’ll expose ourselves to lot of crash which we had in middle of January. So I think that the market needs to spend in this range for a long period of time and what it does is that it gives an opportunity to deep pocket strong investors, to buy into stocks and that creates a foundation or base for the market from, where it can continue this bull run, which we had seen for the past 3-4 years.

So I’m extremely pleased with the way the market is moving. The fact that it’s trading in a particular range provides the perfect opportunity for long-term investors who had earlier been avoiding entering the market when the Sensex had crossed 20,000 or there about. So it’s a good way and in my opinion the whole process is that stock is moving from weak hands to strong hands and that’s the most positive aspect of the trading moves, as well as the volume numbers which have come out for the past few trading sessions.

Q: How did you feel about this earning’s season in totality are you okay with what you saw for the last four weeks?

A: In our universe of stocks, one is pleased - generally the performing sectors did deliver and when I explain, if one looks at the private sector banks or the high tech engineering, some of the software products companies, media companies - by and large delivered and that’s our universe of stocks.

We have got no complaints from this earning’s season. Of course, one or two stocks have missed, our expectations in terms of numbers. But by and large, our universe has done well. But yes, there are a few cracks which are clearly appearing and more of it is there in the commodity side stocks like steels, maybe to an extent non-ferrous metals, sugar also did not show any signs of revival. So there are some issues on that front as well as some of the export-oriented and the software services segment. But selectively, sectors have done well and there is enough choice within those sectors to build a portfolio.

Q: What do you think? Do you think the worst is in place for tech or is this is a one of those rallies, which will flatter to deceive?

A: I think it is one of those rallies, which one could use to kind of exit out of at least the largecap pure software services companies and in fact the environment has deteriorated for them, no matter what the industry may say about them being able to weather this storm. I have my doubts and I would try and correct it, if not.

But I think that these companies are facing severe pressure in the global markets in terms of getting the contracts going as well as the cost pressure remains over here and this rupee appreciation threat is still remaining. So it is just that PEs have compressed and therefore they look attractive on paper. But then going forward I would like to see what kind of earnings growth they can generate.

Q: What's it telling you - the pattern of trade today? Midcaps and smallcaps have done nothing. Largecaps are up 3% on the index and volumes are extremely poor.

A: Two conclusions - one is rather that we could see some amount of institutional FII buying taking place at this point of time; given that the index stocks have rallied, which means that may be some serious investors has started looking at India again and finds it attractive and is buying into our markets.

Second also could be a short covering - because some amount of shorts would naturally got built-up in this particular slide and that could have caused this kind of a spike at this point of time. But I think that the point which you made earlier that the markets are shallow also is responsible for these spikes and that’s corroborated by the fact that the volumes are low. So just as markets fall on low volumes because there are no buyers, stocks could rise on low volumes or thin volumes because they are no sellers and that could explain these kinds of spectacular gains, which we have seen today. The true test will come over the next few trading sessions, whether these levels are being sustained or not?

Q: What's your take on Punj Lloyd? The stock’s collapsed 9% after yesterday’s numbers - would you buy it or do you think there is more downside here?

A: I think that these are good levels per se for Punj Lloyd if one is a long-term investor and may be there is some disappointment in the earnings. There is something in the fine print, which may have dampened the sentiment and the stock. But by and large, it is a very aggressive company with a very dynamic management and there is a very good chance that going forward, over the next 3 or 4 quarters, the performance will come back and be better then what market is expecting.

So it could be that these are good opportunities to get into the stock but as I said, it is a complex company and we need to understand exactly what the management has to say in their concall today.

Q: What is your own estimate of where we go from hereon - the rise has come on small volumes but do you think you could see volumes pick up in the normal enthusiasm that is generated in the run upto the budget?

A: I think it’s a slow process and that’s perfectly fine, so long as markets trade in this range for a few more trading sessions. Gradually sentiment will improve, gradually confidence will come back and then we’ll see a lot more investors waiting in the sidelines, committing more of their funds.

So I think the entire movement since the crash of mid-January has been satisfactory, has been moving in a trading range and not creating new lows, which is the best aspect. As in when some stability comes in our markets as well as global markets, we’ll see the kind of retracement gathering momentum. So it’s doing just fine and let’s not be too perturbed about the volumes at this point of time - they certainly will come back because there is still lot of interest in Indian equities at all levels, whether it is domestic or FII levels.

Q: Have you taken a look at the Emaar issue and the real estate pack as a whole with the kind of a result that have been declared over the last 3-4 days?

A: The way we are playing the real estate stocks is to be very focused into the companies which have got projects in the Mumbai Metropolitan region and trying to avoid some of the other stocks, which have got projects in NCR or in Tier II or other Tier I cites in the South. We feel that prices will hold up best in Mumbai because of scarcity of land and also Mumbai as region is very difficult, has got very difficult entry barriers for real estate developers to come and make decent money.

So our focus within the real estate pack is in the companies which are focused on the Mumbai market. Particularly about the Emaar MGF, even the issue price was at the high-end of our valuations matrix. So we are avoiding earlier and also at this point of time, after the downward revision of the prices. There is still far too much paper of real estate expected to come in as well as floating in the market. So the investor needs to get extremely selective and our bets are on stocks, which are basically focused on the Mumbai real estate market.

Q: What did you make of Future Capital? It has still ended at a wee bit of a premium and it did touch the four-figure sum for just a tad and has managed to end above Rs 900 - what's the advice for those who didn’t get in and for those who have and also your estimate or your expectations from the Reliance Power listing?

A: I think that both Reliance Power as well as Future Capital were issued at prices which valued the company beyond at least our expectation and to put it bluntly, I think they were overvalued. I am a bit surprised that Future Capital got listed at a premium and the premium is still sustainable because clearly some of the investors who have taken leverage would be sitting at loss at this point of time and going forward, we may see sideways to declining movement in Future Capital.

Coming to Reliance Power, again, a similar kind of a pattern can be expected where the listing-in could be at a higher level at a very decent price but then whether it will sustain at those levels is something, which is questionable.

And my sense too is that Reliance Power too, within a few trading sessions could start trading below its issue price. Remember these issues came at a time when the market was on a complete frenzy and a lot of stocks were being valued based on embedded businesses which they had or projects which would go on stream in 2012 and 2015 and thereabouts.

But the entire situation has changed over the past month or so and now we can get real businesses at very attractive PE multiples in the similar space. And therefore although there will be some amount of momentum and froth in these counters on listing and may be for two or three trading sessions, beyond that I think it will get into a sideways declining pattern.

Dipan Mehta's Disclaimer:
It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.

Source: Moneycontrol.com