At 14,500 start buying in 3 sectors: Sabharwal

“When CBOE VIX moves above 45-50 levels, that correlates to possibly 14,500 levels of the Nifty or maybe around 29,000 for the Dow. That will be a good time where some sort of longer term bottom will be made. If that has to happen, it will happen in the next 10-15 days. I do not think it will be prolonged,” says Sandip Sabharwal of asksandipsabharwal.com





On Fed rate hike and market reaction

There was some false commentary which came out that said the US Fed was less hawkish. I went through everything, there was nothing less hawkish in that. Central banks are as hawkish as they can be and when they pumped in money and took the markets up, then everyone said do not fight the Fed. So, why do people want to fight the Fed now? Let them do what they have to do. Let them control inflation and as that process goes on, the markets will find their right levels and that will be the time to buy more aggressively.

But notionally do you have an index level in your mind where you think enough of the selling and one can start nibbling if there is cash on the side?

Nifty at 14,500 is a good level at which I would think the risk reward will be better. I do not know what the final bottom will be, no one knows because in panic and euphoria, markets always undershoot and overshoot. So I don’t know what will happen ultimately but I think that when CBOE VIX moves above 45-50 levels, that correlates to possibly 14,500 levels of the Nifty or maybe around 29,000 for the Dow. I think that will be a good time where some sort of longer term bottom will be made.

At that time, we will have a lot of negativity and no one will see anything positive but then the valuations will be attractive enough to allocate good amounts to equities. That is what I am watching out for and if that has to happen, it will happen in the next 10-15 days. I do not think it will be prolonged.

Now whether it is 14,500 or 15,000 or whether it is 13,000, nobody knows but my limited point is that 25% return in two-and-a-half years means that we are not an expensive market now?

We are expensive in pockets. That is the issue where a lot of the market capitalisation lies. Many of the stocks are expensive and there are pockets which are not so expensive and so it has to be a selective thing.

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The market on steroid seen in 2020-21 is not going to come back where everything went up and if one were to shoot with a dart, one would have done better than stock picking! That phase of the market is not going to come back. We are going to have slow, steady rise, stock picking and allocations will become much more important and the leaders of the past where people just bought a certain set of stocks and thought that they would do the job for them that might not happen.

Of late we have been talking positively about the opening up trade but with the Covid cases rising, is this set for a reversal: Today we heard from Ajay Singh of that they need to take price hikes. How are you looking at the entire space?

I think your question had two parts – one on the Covid part. I do not think Covid is impacting demand in any way. Opening up is for real and it is not going off but that is the reality whether you wear a mask or do not wear a mask is the only difference.

The second is the huge impact of fuel prices that cannot be wished away. The fuel prices have gone up too much too fast that this industry will find it very tough to absorb that and that is the biggest challenge. Unfortunately SpiceJet has had its own financial issues also and there is no other airline in India which gets into trouble and survives.

That is very important for the consumers but near term yes, it will be challenging because as the holiday season gets over, the July to September season is a lean period and in the lean period, when demand falls, if fuel prices are at an all-time high, it will be very tough to cope with that.

What will you buy after this correction? Would you buy more of the same is the question or are there newer names which may look attractive?

More of the same depends on what you are holding. I do not know who is holding what. In my view, post this correction, the sectors to buy will be autos, capital goods and financials in this sequence.

A lot of issues that the auto stocks were facing for two, three years are getting addressed and domestic focussed auto companies will do very well. A lot of capital goods companies have got huge order books and the execution cycle is unlikely to be impacted for the next two years and so that sector will do well.

Indian financials are very well placed in terms of capital adequacy and a lower base. But they will bear the brunt of the last leg of fall the most because they had obviously the highest weightage. That is where we will need to allocate as the correction gets over.

Where I would not like to invest will be commodity space stocks and technology stocks because I believe that technology in the next couple of years will be tougher with falling budgets and reduced growth rates.

What about the cement space?

Cutting target prices after the stocks are already down 40-50% is ridiculous. One will need to take a view prior to that.

is already down from Rs 8,500 to Rs 5,500 and when cutting estimates, I would think that cement also will be an interesting sector to watch out for and because of the negativity, price fall and in the near term, margin concerns, you might get the stocks another 10-15% cheaper.

But UltraTech is anyway near Rs 5,000. plus. , minus something or similarly some other cement stocks I would be a buyer. I would not look at concerns at those levels because the stocks could be down almost 40-45% from the top and there will be a 20-30% return potential form there.

In the very near term do you sense that FMCG could a little bit better than the others?

I think as a defensive sector FMCG or pharma could outperform in the near term but those might not be the sectors to buy as the correction plays out. For those who are holding them it is fine but for fresher allocation, we might actually see better value in some of the domestically related cyclical stocks.

Harry Byrne

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