Market moving in 15,800 range, likely to stay here next 2 months: Nitin Raheja

Is this move for the last two days of the week believable? Nothing really has changed – be it inflation, crude price or anything else. But the market has rebounded.

When we talk about it being believable, I just think that the market has been trending in a range. The market went down a couple of times around 15,800 and has seen a bounce back and then once again, some bad news may come and then it slides down. I just think that we are in a range and we will be trading, intermittently, within this range.

We will get these sorts of rallies but largely speaking, at least over the next couple of months, we will probably be here. We do not see things really moving out of this range significantly. The good part is it seems to us that 15,800 seems to be holding well for the market at the present moment. So, the downside is now looking defined in the absence of any larger bad news that could come.

Brokerages seem to be pretty upbeat on the stock. CLSA has got a buy rating, JPMorgan is overweight and they are saying that there are near term headwinds but the leverage is unlikely to rise and that valuations are offering an attractive risk reward. Where do you stand when it comes to Hindalco?

We do not really talk about specific stocks, but in terms of the results of some of these aluminium companies that have come over the last few days, I think the strong aluminium prices have helped these companies more than others in the sector to be able to withstand raw material pressures. In that sense, the demand scenario is extremely robust at the present moment and I think these companies will do well in the shorter term over the next six months.
We generally avoid any cyclical-like commodity plays in our portfolio because our strategy is essentially to invest more from longer term companies with long-term growth visibility and commodities by itself are very volatile and do not qualify out there. However, I think the outlook for the aluminium pack is looking good at least in the short term.

Rising inflation is becoming a sticky subject for a lot of companies. Now the Reserve Bank is going ahead and revising their inflation forecast upwards in June. It is clearly a signal that this continues to remain quite an issue. In light of that, how are you looking at the problem of higher raw material inflation in particular for the entire consumption basket?

We are seeing the impact of inflation play itself up. In the case of the manufacturing companies, in this current quarter, margins came under compression.

When it comes to consumption, it is a flow through effect that will also play itself out. I just think that luxury consumption is not going to get affected. We have seen that in the past also. The impact of inflation is felt at the bottom of the pyramid. So mass consumption oriented items from FMCG companies will see more impact.

There will be some impact also on the electronic consumer durable manufacturers. But I think that in the whole consumption basket, the upper end or large ticket items will see much less impact or almost no impact and absolute small ticket items in consumption like say for example cinema tickets will see an impact. Even during 2018-19, we are getting into that sort of zone where we will see consumption coming under pressure going ahead.

What did you make of the numbers from and also the news that they have reappointed Nadir Godrej as the chairman and MD. The stock was buzzing in today’s trading session.

Godrej Industries a diversified company, it has got many pieces to it. It has got the agro basket in it, it has property holding and so and so forth. But we have not seen the full impact of the consumption slowdown that is possibly on the anvil right now. But I think we will see that more in the FMCG players and not so much in Godrej Industries.

Thematically is there something that you are looking at or are you just completely stock specific in this market?

I think you have to be very stock specific as far as this market is concerned. We are once again getting into that phase where it is going to be individual companies and their strength. But if I have to look at one sector that should do well, it is going to be the financial sector and more specifically the banks.

Credit growth is coming back and capitalisation of banks is very healthy. Their deposits have gone up tremendously and we see an increase in interest rates. We will see an increase in their margins taking place as the first leg happens and balance sheets have been unencumbered. Financials is a sector that we believe is well poised. Also do not forget when inflation and prices of goods go up, working needs increase and that should benefit demand for credit. Financials had been sold tremendously. The valuations are also starting to look very attractive.

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