The Bull Run for the market hit a road block this week with the benchmark indices wiping off some gains from previous week led by geopolitical tensions in Iraq . The Sensex lost 168 points to close at 25228 and the Nifty fell to 7542, down 41 points.
Pathik Gandotra of Dron Capital Advisors believes the market needed a reason to correct and sharp rise in oil prices was just one of them. According to him, the market is in a correction phase and every dip must be used as an opportunity to buy.
"I don't think USD 3-4 spike in oil prices and a knee-jerk kind of reaction to some events in Iraq can make a big difference to our bull market," Gandotra says in a discussion on CNBC-TV18.
Echoing his views, CK Narayan, MD, Growth Avenues says all bull markets are prone to some kind of pull backs and one must utilise those pull backs as buying opportunities.
On specific stocks, both the experts like pharma space and particularly Lupin . Along with that, Narayan is bullish on Reliance and HUL and Gandotra recommends buying private sector banks.
Below is the verbatim transcript of the discussion on the channel
Q: Pathik this looks like a very good opportunity for the investors who have missed the bus to get in, we saw a massive slide on Friday and a lot of good quality names that have rallied quite a bit came in for profit taking. Would you use that as an opportunity to buy or do you think you can get better levels in the weeks to come?
Gandotra: It's very difficult to time this market. The market gets very volatile. Once you sense that the market is in a correction phase, you should use every dip to buy, you could have actually bought something today and could buy some more on Monday. The market could have corrected on any reason, and oil was just a reason. I don't think USD 3-4 spike in oil prices and a kneejerk kind of reaction to some events in Iraq can make a big difference to our bull market.
The CPI data coming off and the growth acceleration are important data points that came on Thursday. It is just the beginning of what we all were expecting of growth to revive eventually and this was in the pre-government era so this was the April numbers and so, that is actually the spillover from what the previous government had done in its last three months. They had cleared a lot of projects so all that order book and all that is going to lead to growth right now and then what the new government does will be a bonus later on. So, you can have a whole range of portfolio from high beta to defensives to good growth companies but you should stay long.
Q: What is you sense looking at the charts? Do you think market may have hit a near-term peak at 7700 on the Nifty or not yet? Do you think this week was an aberration and the market would bounce back?
Narayan: We have been having a pretty decent run ever since about 6600 and so, if we were to think from a logical point of view, you are up about 1000 points on Nifty and anybody in his logical mind would say that we were due for a reaction. But then, the way people were acting over recent times was that they were just giving in their shorts because the market was not in any mood to come down. Now, it looks like it needed some external event to trigger that excuse to sell or take profits and that is what has happened today.
There are some people with some positions, you have taken profits but much of what is happening in the market is an absence of sellers and that is what is really driving the market. Post election results or towards election results everybody had become a buyer overnight and there is lot of money chasing spare goods and there is really not much of a supply in the market. This is why we have had this big run-up and the big run-up feeds on the sentiment and then we were just having a nice run one loo0p feeding into another so whether this will produce the kind of break and we ascribe into some particular level or some resistance level would largely be academic or irrelevant.
We are in a bull market and bull markets will be prone to some periodic pull backs and those pull backs will actually present us all with some buying opportunities. Now, it is only a question of defining where those pull backs will probably terminate or run out of some amount of selling and profit taking and that is a place to take a position up. Now, whether that will happen today, has happened today or it will happen sometime in the next week that is going to be an individual call.
Market will move along such lines and so, we are all set for better times, it is only a question of where we work up sufficient courage to enter this market from the long side.
Q: Market did not really respond to the positive IIP data, more importantly, the big pick up that we saw in the capital goods numbers. So, would you go ahead and buy something like BHEL that has corrected about 10 percent last week?
Gandotra: I am still wary of public sector undertakings (PSU) and so, I would buy lot of other companies. There are lots of other capital goods companies available which one can buy. There will be Q1 and Q2 earnings which will come after the Budget and so eventually, it is earnings which will determine what stocks will sustain and what will not sustain. Therefore, there are certain sectors where you are seeing earnings growth already reviving, there are certain sectors where earnings growth is still to revive but you see de-leveraging.
There are certain sectors where there is nothing, it is just sentiment and where there is just sentiment it will correct, where there is actually earnings growth reviving there you will see continued rally. Actually the good names are what will continue to grow up very significantly.
Also, some of the companies that are de-leveraging, which have sold assets in the course of last few months and are showing de-leveraging whether they are in real estate or in infra or any other sector, they will also do well from here on. It will become more selective then what it was earlier but I still think that as long as your earnings and fundamentals are in place, you should buy those stocks.
Q: Which stocks are you advising to buy at this juncture because if it is still a bull market, this would be the best opportunity to buy stocks?
Narayan: Very clearly you want to buy stocks that actually pull back into support and that's a more prudent thing to do rather than to keep chasing stocks higher.
When the market is very bullish, it's rather easy and almost kind of compelling to keep buying the ones that are breaking out to new highs because that is where the momentum is and that is where the excitement is but that is certainly not where prudence lies. In that context, stocks that look very solid like some from oil and gas space, premier among them being Reliance. It has a pretty decent run which is not really anything significant like others but it is also pullback to a nice level of supports from Rs 1070-1075, I would certainly be looking at Reliance, this is one of the stock to buy.
The other thing where I would look at is something which has not really participated which could attract some news flow, has a lot of pedigree and can also create a kind of a scarcity premium and that would be Hindustan Unilever Ltd.
HUL made it up towards the close in trading on Friday evening and I would look at HUL, it is something that I would do on a positional play, look at it as a multi-week, multi-month play with a possible price targets somewhere around Rs 800.
Reliance could be a trader's delight, it could be a positional plays delight, it could be an investor's delight. The price level to be looked at must be at least a couple of 100 points from where it is today.
Third stock that I would look at would be Lupin which is again quite steady. Most of the pharma space has been steady and within that space Lupin is one of the stocks that I quite fancy along with Cipla .
Most of the charts in the largecap space are reasonably similar but within that I would probably zero in Cipla and Lupin as two candidates where I could still see around 8-10 percent which would be of interest to traders and about 20-25 percent which would be of interest to medium-term investors.
Q: What was also interesting this week was that we had shifted to defensives or relative defensives. IT did well, pharma did relatively well, HUL did well, while PSU banks, oil and gas corrected. What would you buy right now? Would you buy PSU banks which corrected or would you buy IT and pharma now where we have seen some buying over the last one week?
Gandotra: I would buy private banks although PSU banks might bounce back from some point but private banks have actually not participated in the rally since May 16. If you look at the prices, the highs hit on May 16 have still not come today whereas all the PSU banks have gone up by about 25-30 percent above those highs.
Private Banks have outperformed over a longer period of time but in this whole frenzy they have underperformed and so, private banks are good space to be because that is where the earnings growth will come eventually.
If you are betting on the fact that there will be reform in the PSU banking sector, that's one bet and that bet has quite reasonably priced in but the immediate thing is that private banks, which will have strong earnings growth will get their multiples re-rated significantly and so I would prefer to buy private banks.
I would also buy pharma because stocks like Lupin, Dr. Reddy's Laboratories Ltd or Aurobindo Pharma have pulled back in interim more because of shift in allocation and not because of any structural problem. Also, people are worried about the rupee. Now, things are settling down and so, I would prefer to buy pharma.
For IT I would wait a bit more because we are still not clear as the commentary from the managements was not all that positive in March, April and so, I would like to see how the management change their commentary. I would wait for that and will not go ahead and buy right now. Although the valuations are attractive, you could start buying but I would not really go overweight on those stocks right now.
