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Naresh Kothari, Edelweiss Capital feels that the markets may rally around the Budget. He is not sure how the Budget would turn out to be - a non-event or a populist one. He feels that unless there is anything that the market senses as 'negative', the markets may sustain its short-term momentum, post-Budget as well.

Excerpts from CNBC-TV18抯 exclusive interview with Naresh Kothari:

Q: Does it look like that we could have a little bit of a rally around the Budget and how much more would you give this move?

A: Definitely seems like there has been a rally around the Budget; I think it is normally the case, the global cues also have been pretty okay. We do not expect there to be any significantly new in the Budget. In that sense, it might end up being a non-event because Budget, which is this close to elections is normally not very structural in nature. It will be probably a lot more populist as we have seen the trend yesterday also. But if the markets do not find anything significantly in the negative, the short-term momentum that we have seen over the last two-three days, will continue forward.

Q: Tactically, how do you approach this expectation of a short-term rally, how long do you expect it to last and would you start investing a little bit more hoping to see a bigger bump up by the time we are done with the Budget?

A: Our view for the last month or so has been that we are going to be in a reasonably rangebound market. I think the upper end of the range could be possibly somewhere between 5,500 and 5,700 and lower end in the 4,500-4,800 kind of a range. When you are somewhere in the middle of the range and your bias is still upwards, I think from a trading perspective, definitely there is an upmove possible.

From a fundamental perspective, I think specially in the largecaps, one is going to make a lot more trading moves. But in the midcaps, you are waiting for some amount of confidence to return into the market. I am not so sure that the confidence in the market is going to be back in the next two-five days. I think the market will take some kind of time to stabilize on the width size.

So I would not be too much in the midcaps right now; especially if they are running up very fast. But things which have been battered badly, where valuations have started looking attractive, we are constantly looking at those stocks and sectors and we are trying to start getting investors to get a little bit more comfortable picking up a few of those stocks. Not that every investor wants to come into these sectors at this point of time, which is always another way of looking at that. Therefore the stocks are coming to a range where they become a lot more attractive because at the worst points of time, it is most difficult to get investors to buy in.

Q: Fundamentally, what is your sense of the cement pack, it has been a big underperforming sector, do you think they could play a bit more of by way of catch up?

A: Surely, short-term catch-ups could be in place. But our view on cement - FY09, we are looking at about 30 million tonne oversupply situation coming into the country and our view is if that is the case, prices will not go anywhere. You will actually have close to 15% so from 100% - you should ideally be down to 85% capital. That is the kind of capacity that is coming through if you want to have a supply-demand match. Since that is not going to happen in a hurry, we will see prices coming down. I think every significant move in cement sector you will start seeing people wanting to reduce their exposure in the sector.

I think fundamentally, we will keep on seeing some kind of supply continuing to come in the cement stocks; it is not that the sector is already very underowned in any significant manner - there is still cement holding in quite a few funds and we will see that thing coming through; in fact, beyond into and also. I think currently, although things look like they will come back on track; it might end up being a shorter-term cycle this year. There are clearly two-three large players who have made some announcements but things do not currently seem to be visible on the ground. So our analysts are still not factoring in those numbers. But if those supply numbers also come in, then things could have an extended two-three year kind of an oversupply situation in the market.

On the very long-term, the view has always been that the largest cement company in China is probably larger than the entire cement sector and so on and so forth. But in the short-term, this oversupply for the next twelve-eighteen months definitely will cause prices to dampen.

Q: Do you track or have coverage on any of these three infrastructure stocks Lanco, GMR Infra or Punj Lloyd?

A: We do cover those stocks fundamentally or overall if you are asking for our view on this sector I think Lanco is the one that we like the most. We obviously also think that there is a lot of value still there in GMR and in Punj but I think our favourite has been Lanco for some time. The stock has got beaten down badly in between. We think there is lot of opportunity-across the infrastructure space I think there is a lot of opportunity that we are constantly looking out for.

Again from a Budget perspective, we are pretty comfortable. I think may be there will be a lot more for the services sector this time around and for the agricultural sector too. But according to us, infrastructure sector itself will not get neglected. There will be a set of SOPs that will keep coming in or there will be a set of things in the Budget for the infrastructure sector.

So companies like this in the very short-term also and otherwise I think will benefit from this.

Q: What is the call on power now?

A: I do not see things running away too much in a hurry from here. I think there has been a reasonably decent shock that the market has got on the sector and on top of it, I believe that there is enough supply of paper, which is around the corner, in case power sector again looks up very strong.

Having said that, I think in the very short-term or in the next six months timeframe, companies which are already there which have raised capital and which have now pulling up projects I think you will start seeing good interest continuing to remain in them. I think at the right valuations, power sector obviously is one of the most important bets that every investor is wanting to make.

So there is long side fundamental strength in the sector. I think the key is, at what levels are you comfortable holding onto the stock? So even Reliance Power for example, on a revised price of close to Rs 300 is very different from a price of Rs 450. You are looking at a 33% lower number for investors and I think at that level, things start becoming a lot more attractive. As is the case with lot of other companies, I think by and large, analysts have been extremely bullish on the sector.

Q: Anything that might be a shocker from the Budget from an equity market perspective?

A: Just a couple of things - one is that if there is any change in STT; specially if they increase that, I think volumes could be in further mess and that would be reasonably bad for the market. that is something that I would be very worried about.

Other than that, I do not think there is anything significant specific sectorwise or anything which is causing sleepless nights for us; we are pretty comfortable otherwise, on a best case that this will be a more populist Budget than an industry supporting Budget. Tax breaks and everything else hopefully will go further towards this thing - the buoyancy tax collections have shown looks like things should be pretty okay.

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

Source: Moneycontrol.com