Sunday, July 13, 2008

Mkts to see only timed correction from current levels: MOST

Manish Sonthalia of Motilal Oswal Securities feels that there are headwinds but all that seems to be in the valuations where they have become extremely fair. He said, "Even from a short-term perspective, given the shorts that are there in the system, we think that a fair bit of short covering can actually take the markets up to maybe 15000 or 15500 within the next two months. So, not too much of a downside and a fair bit of upside from the current levels is what we are saying."According to him, even if we see the headwinds, the concerns on inflation, credit crunch in the US etc, we could be seeing a timed correction rather than a price wise correction from the current levels.

Excerpts from CNBC-TV18?s exclusive interview with Manish Sonthalia:

Q: No alarm bells today but over the last few days, you seen the markets doing a bit of a flip flow here and there, how does an investor approach the markets from here, what are your views on the market?

A: Everybody is waiting on how the numbers for the first quarter shape up. There are a lot of apprehensions on the margins front, interest cost, depreciation etc. If you see in our preview report, what we are seeing is that all the negatives seem to be there in the prices. There are headwinds but all that seems to be in the valuations where they have become extremely fair.
We are trading at close to 13 times of FY09 earnings. If you adjust the valuations of the subsidiaries of the insurance companies and the embedded value of Reliance, we are trading close to 10 times. So, there are headwinds but our sense is that it?s all factored in the price. Even from a short-term perspective, given the shorts that are there in the system, we think that a fair bit of short covering can actually take the markets up to maybe 15000 or 15500 within the next two months. So, not too much of a downside and a fair bit of upside from the current levels is what we are saying.

Q: There are some longer-term concerns, bad news is continuing to pour out of the US and then the inflation headwinds. There are two contradictory trends affecting both growth and bringing it with higher inflation. Is there a fear for the rest of 2008 or for the next 12 months, the index and broader markets could more significant lows and we could see a long lean period?

A: Contrary to expectations of many in the market who believe that the markets could undershoot on the down side given the valuations that we are in, we think that even in the worst case scenario, we could be looking at a time wise correction rather than a price wise correction from the current levels. We have discounted many things too soon and fast. So, even if we see the headwinds, the concerns on inflation, credit crunch in the US etc, we could be seeing a timed correction rather than a price wise correction from the current levels.

Q: So what would you pick up, I assume when you say a time wise correction, there is a long lean period, maybe 12 months to pick up stocks?

A: Wherever the earnings visibility is there, those are the sectors and stocks to pickup. The banking space where you have a visibility of at least a 20% of credit growth, the private sector banks etc. are trading at valuations, which are quite comfortable. The infrastructure and engineering companies have seen the valuations come up very sharply and the order book is close to 4 or 3.5 times the bill to book ratio. For an IT company, you could be expecting anywhere between 18%-25% growth in revenue terms, or the telecom companies which could easily be going at 25% plus.

So, valuations are correcting and the de-rating is starting to happen but you are convinced regarding the earnings visibility. So, those are the sectors and stocks to buy.

Q: I didn?t hear you mention realty and sugar?

A: There are concerns in the real estate in the short term in the form of funding costs etc. Our outlook is quite hazy as far as the short term is concerned. On long term, there are no problems. But, the core land values of reality companies tend to hold. So if you talk about DLF at current valuations, it would be having a market cap of close to Rs 70,000 crore. The land bank that would be represented by this, by the number of shares multiplied with the price would be closer to these levels. So, our belief is that if you take the largest company, the core land value in the form of DLF would be at around the current levels. Any significant breakdown in the current price would clearly be looked as an opportunity to buy for the long term.
So, our take on the real estate pack is clearly positive for the long term. In the short term, there are too many risks in the form of overhang of supply and funding costs

moneycontrol.com dt. 13 7 2008

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