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Nifty to move in 10,200 -11,500 range this yr: Anish Damania

Anish Damania, MD & CEO, IDFC Securities, tells ET Now that the broader market has been underperforming and the market has been held by a few stocks. This is not a situation which can continue for a longer period of time. Edited excerpts: Do you think we have got a bottom in place? In earnings, at least the initial two-three numbers have been decent. Could that act as a relief now? If you look at this whole year, it is largecaps which have been performing and the midcaps which have been underperforming. The difference between the two has now reached about 16% odd as we speak. Secondly, within the largecap, in Nifty alone, eight stocks constitute about 50% of the weight of the index and out of those eight stocks, six stocks have outperformed the market by about 6% odd. The balance 42 stocks combined have underperformed the market by about 6% odd.What we are seeing is that even in the largecaps, there is a huge polarisation of performances which means that the broader market has been underperforming whereas the market has been held by a few stocks. This is not a situation which can continue for a longer period of time. The markets are going to have a range between 10,200 and 11,500 during the year because the largecaps are going to drive the market performances and that too are few in number. Having said that, this quarter’s earnings are expected to be strong because last year the earnings were weak. They had fallen about 9% on the back of GST adjustments. This quarter’s earnings are expected to be in excess of 20%. That is a factor which his been donned by the market but there will be stock specific outperformances which will continue and you will see better than expected performances. We saw that in TCS and similarly, if something else also outperforms, we will see those performances out there as well. If I look at some of the foreign dominated stocks -- HDFC Bank, HDFC, TCS, Infosys, HUL – all are sitting at all time highs. Local investors are saying they are not buying these stocks. Foreigners who own these stocks are selling, domestic investors who have cash are not buying and these are the so-called quality stocks and they are still sitting at an all-time high. Quite a bit of a dilemma, isn’t it? I do not think it is a bit of dilemma because what we are seeing is a net figure but there is a gross buying and a gross selling as well. All what we can see is that even the FIIs are getting polarised towards a few stocks. HDFC Bank, Kotak Bank and IndusInd Bank figure in that list in the private sector. They are basically selling some of the midcaps and also some of the other stocks in the private banking space or in the public sector.So, when you look at the broader range of the market you are seeing even within the Nifty about 33 stocks are underperforming and only 17 stocks are outperforming so which means that on a broader basis, you are seeing selling in the market. That could very well be the trend that we are seeing as far as FIIs’ selling is concerned. So, it is not correct to say that if FIIs are selling them, the dominant stocks will also fall off. It may not be possible. Secondly, domestics were underweight in stocks like HDFC Bank, HDFC, Reliance, L&T and Hindustan Lever. They are trying to catch up with the individual weights of these stocks and that is why the domestics are also buying these stocks. As a result you are seeing a huge polarisation towards a largecaps, especially those stocks which have a significantly higher weight in the index. What are you looking forward to in this earning season? What are the broad sectors where you think earnings will reward versus sectors where earnings will disappoint? Stock-specific earnings will be better in IT sector. We are going to see earnings being substantially better in the consumer sector, in autos. We are going to see disappointments come through in the oil and gas sector particularly because one is very sure as to how things are going to pan out except for in the case Reliance. We are going to see some disappointments in the pharma and discretionary consumer spaces as well. It is going to be a mix and we will be more stock specific because even within the sectors, you will see some stocks doing particularly well and some stocks may not do that well. Will IT and pharma continue to outperform? In IT, it looks like outperformance might continue for some more time because the depreciation of the rupee as one of the things which is happening and what TCS is showing that there is some strength even in the sales growth. We are not going to see downside risk in terms of the revenue growth for the IT sector and there could be an upside risk on account of currency depreciation.In case of pharma, once again the underweight position has been brought to nearly less underweight or up to neutral and that is why we have seen a sharp run up in pharma stocks. But the first quarter is going to be weak for most of the pharma companies where the runup has happened ahead of time. We need to be really watching those results and see how they pan out especially with respect to Sun Pharma, Lupin and Dr Reddy’s.Where is the investment opportunity in pharmaceuticals?We feel that while the downside risks in Sun Pharma are capped, upside from the point of view of where the stock is trading at, it is fairly expensive. From that perspective Sun Pharma may have less of an upside. Aurobindo is where we feel you will see much lesser risk, much better linear growth and that is where we are probably getting more comfort.Aurobindo is our top pick in pharma space.Within the auto pack, would you keep it with the passenger vehicle names or are you seeing opportunity in two wheelers and CV makers?We are seeing good opportunities in two wheelers now because over the last three years, two-wheeler sales have not been that great except in case of scooters. So, we are seeing a huge amount of replacement demand coming back.Also the two years GST and demonetisation related issues had meant that demand was postponed. We see that demand coming back over the next two years and the two-wheeler segment where the risk reward ratio is in your favour in terms of valuations and growth is where we see significant upside.Hero MotoCorp is our top name out there. Secondly, we are seeing a good amount of traction continuing in the car segment and Maruti remains our top pick. It just depends at what price you need to buy for reasonable gains. But Maruti has been outperforming across the time cycle and that will continue. CVs depend on the news flow because recently an article suggests that during election time, CV sales are likely to increase. In that case, though the performances could be very good in terms of earnings, the stocks may not outperform out there.

Source: ET

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