Kunj Bansal on where to profit book right now

‘After a lot of management stake sales, we have a IPO flurry coming up.’

The key monitorable going forward will clearly be the result season which has started, says the Partner & CIO, Sarthi Group.

What are you focusing on now? Do you see further profit booking or do you suggest those who have missed out on the recent rally should continue to enter the market?
Surprisingly, the market had been moving almost one way from March till now. Only in the last few days, we first saw some consolidation kind of movement and now we are seeing a correction. Of course, it is always a difficult call to say whether the correction will continue or will we back in the upward movement, but the key monitorable going forward will clearly be the result season which has started.

We have started with the softer results of a few IT companies and then one of the retailing companies. The larger part of the significant drop in top line will come from sectors like automobiles, consumer durables and those results are yet to come so that is where maybe we can see some build up of negativity in the market, some build up of correction phase continuing in the market.

On the other side. monsoon progress seems to be doing well, agriculture is giving positive news. So, all the positive new flow, the money raising is suddenly back in action. After a lot of management stake sales, we have a IPO flurry coming up. These are the various developments. Those monitorables are very difficult to take a call on in the short term. So, traders should go with very strict stop loss. But for all those who have been left out of the market in the last three months, with every correction, they should start getting in slowly, if not fully in complete one shot.

What is your take on the IT basket?
If we go two-three days ago starting with TCS to today’s MindTree and Wipro numbers, seem to be on expected lines. Expectedly the growth rates are down both on quarter on quarter and year-on-year basis and to that extent, nothing significantly positive or negative is to be read into it. But if we put it in the context of a market like Tuesday when we had an almost 2% fall, obviously it is the high beta which takes the larger part of the brunt.

Similarly, when the market rises, the low beta defensives like IT, pharma and consumer names outperform. If the market correction continues, we will see outperformance from the IT names.

Where should one profit take right now? We have seen a spurt in the entire PSU pack though there is still no indication of a timeline when it comes to when the disinvestment process is going to kickstart. There are a lot of question marks on what the pricing etc is going to be as well. Do you think one is safer to profit take in PSU stocks?
So two, three points as an answer to your question. On public sector disinvestment, I think it is going to be a very big challenge for the government because while markets fell in March and recovered afterwards, we have not seen any significant recovery in the public sector space.

The public sector banking index was continuously falling, not only in February and March, but as recently as till May end or so. Only in June, we have seen a sharp recovery of about 24%. If I remember correctly, my numbers could be a little bit here or there in the PSU bank index but that 24% recovery does not speak anything.

The fall has been in the last few years of the order of 70-80% in the prices of some of the PSU banks and if you recover 24% from the bottom, you still continue to remain 70-80% down from the top. So I do not think the public sector divestment is going to be a source of funding for the government. Neither would the government be interested, except if it is successfully able to go ahead with one or two major divestments like LIC. So that is one part.

Profit booking depends on what one is expecting. If one is expecting further correction to come in, then it is still time to keep booking in the high beta stocks from BFSI, auto and real estate. But if one expects that the correction is to be short lived and will be over in a day or two, then that would not be the space.

Third and last part, in case of any recovery in low quality stocks, we have seen quite a lot of interest coming in some of the midcap and small caps from sectors which are not going to see any immediate recovery despite things starting to get normalised.

In case of some of the public sector companies -- both banking as well as non banking -- where the financials are not supporting and where we have not seen any price recovery, it is a good time to exit from there.




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