Expect market to remain rangebound in short term: Gaurang Shah, Geojit BNP Paribas

In an interview with ET Now, Gaurang Shah, VP, Geojit BNP Paribas, shares his views on the markets as well as some sectors and stocks. Excerpts:

ET Now: If one takes a slightly longer-term view, what do you think are the key risks that we need to be monitoring? Where do you think we have got a near-term bottom on the Nifty for now because we have got the earnings season kicking off, we have still got a lot of global jitters as well?

Gaurang Shah: The only exciting thing about tomorrow is the match between India and Australia because the markets have been absolutely subdued and are in a range. We do not feel that this range is going to break out. We may see lower levels of 8520 to 8480, and on the higher side, the market may remain around 8585-8630 levels. That is going to be the broad range.

We have the F&O expiry tomorrow and next week you have an extremely truncated week. We just have three days of working, within which for one day, there is not going to be any bank clearing and for two days -- that is Thursday and Friday -- we are going to have the exchanges shut off. So we would effectively have low volumes, range-bound moves, and extremely unexciting days. Thereafter you will have the credit policy on 7th of April.

So for the next week or two, we really do not feel that you are going to see any major breakout or breakdown. It is going to be range-bound. We will see stock and sector-specific moves on the fallback of earnings that will be unfolding in the next fortnight or 20 days. For traders it is going to be very frustrating, but for investors, from a long-term point of view, there are sectors which look exciting in terms of earnings drop back.

ET Now: Last week everyone was blaming the market action on dollar strength, this week it is year-end compulsion and F&O expiry. I wonder what could be the reason for next week because the markets are running out of excuses.

Gaurang Shah: Yes, you are right. Dollar strength was something that people were talking about, but if you actually go to see the rupee, it was extremely range-bound and we had expressed our view that we could possibly see levels of 62.25, which it did, and then there is some minor weakness that you are witnessing.

But owing to the lack of triggers -- both on the domestic front and on the international arena -- I do not think there is any exciting news that is going to come through. So, it is going to be painful for at least a week or a fortnight for the markets to be in this kind of range.

ET Now: Autos are looking extremely interesting today and, of course, the Tata Motors rights issue just got that go ahead as well. What is the sense that you are getting for the auto pack, especially some of the larger names, the likes of Tata as well as M&M, I want to talk about the two wheelers as well because you have had some unseasonal rains in the northern part of the country, so that is going to impact rural spending?

Gaurang Shah: Yes, not only autos, FMCG is also going to get affected with this unseasonal rain and slowdown in rural/semi-urban geographies in India.

Starting with four wheelers, Tata Motors, Maruti and M&M are going to be the order of preference. As a disclosure, we do have a positive coverage on all these three names and then in the two wheeler pack, TVS Motors, Hero MotoCorp and then Bajaj Auto. This rights issues and paring down of debt, as far as Tata Motors is concerned, is going to go down extremely well. Not to forget, they are already working on the new assembly line. The only problem is the sluggish numbers that we are seeing, not really incremental positivities in terms of month on month sales numbers, especially for Tata Motors, but nevertheless with the new launches of Bolt and Zest, there is some interest picking up.

ET Now: Why are some of the mid-tier PSU banks sitting at a 52-week low?

Gaurang Shah: If you go to see the last quarter earnings, not only the midcap or small cap PSU banks, but even names like Bank of Baroda, PNB, Oriental Bank of Commerce, Corporation Bank, Bank of India are really disappointed. The rate of deterioration was very fast, from Q2 to Q3 you saw the kind of deterioration happening.

My counter question is, what happens to that argument about huge discounts and valuations that the PSU banks are trading at. If it sounds critical, they deserve to be traded at a discount given the kind of earnings some of these PSU banks have delivered. On the flip side, your argument will be there that private sector banks are going at a premium, minus of course ICICI Bank which came out with a disaster set of numbers, but we believe that value investing is still preferable with private sector banks.

As a disclosure, right from ICICI Bank, Axis Bank, HDFC Bank, Kotak Bank, Yes Bank, IndusInd Bank, DCB, a whole host of them have a positive coverage. The only bank we have a positive coverage from the PSU bank is State Bank of India.

ET Now: We have also seen the USFDA come down rather heavy on pharma companies. In a way it seems to be a periodic phase and once again you are starting to hear about more stringent inspections coming through. Ipca is the latest causality that we have seen in the markets today. In light of that, do you think it is going to be the front line pharma guys which will continue to find favour or are there still some value ideals that you probably got for us in the midcap pharma segment?

Gaurang Shah: If you are in the business of making medicines and life saving drugs, you have to get your act right and there is often feeling in the market that USFDA is rather being biased or rather being unfavourable to the Indian pharma companies. But if manufacturing deficits are going to come through, you have to have global manufacturing capacities and people who can maintain those kind of standards.

So yes, this thing has really come out as a huge negative, especially for some of those names which in the recent times have been hit by the import alert by USFDA. But on the flip side, the flavour is definitely with the names like Lupin, Sun Pharma, Dr Reddy’s, and Ranbaxy. We had a positive news this morning in terms of the merger of Sun Pharma and Ranbaxy. As a disclosure, we do have positive coverage on Lupin and Dr Reddy’s as well as Sun Pharma. So somewhere you will definitely see shift from some of these midcap pharma names to the front line names.