April might bring respite to markets after March sell-off; top five bets: Motilal Oswal

There have been only 6 instances since 1996 when the Sensex declined sharply after a 5% or more sell-off in the previous month, says Ravi Shenoy, Vice President-Analyst-Midcap Equities, Motilal Oswal. In an exclusive interview with Kshitij Anand of EconomicTimes.com, Shenoy says that baring a global cue, he doesn’t see a continued sell-off in April.

Q) There is one trend that we have witnessed in the month of March and that is ‘sell on rallies’. The Indian markets are selling off on an intraday basis whenever there is any kind of good news. Does that worry you? And, will April be any different?

The Sensex is lower by 6.5% from the end of Feb’15 to date. The fact that the markets sold off on good news, both domestic as well as international, does not inspire confidence in the markets. The selling, also, has not been accompanied by heavy institutional sales.

Based on current cues, the selling or profit booking in the market seems to be likely to be limited to March, and April may not see such a vicious down move.

There have been only 6 instances since 1996 when the Sensex has declined sharply after a 5% or more sell-off in the previous month. Three of these 6 months have been post the Lehman crisis in 2008 and 2 in the post Y2K scenario in 2000. Baring a global cue, we do not currently see a continued sell-off in April.

We, however, have our eyes on the dollar & EM currencies, crude and the political situation in the Middle-East, and economic data out of Europe as these have potential to un-nerve investors in emerging markets.

Q) Mutual funds are buying heavily into the market after remaining net sellers for two-three years. Do you think retail investors are making a comeback with vengeance after burning their hands in the 2008 financial crisis?

Retail investors turned bullish in 2014 after 5 years of pessimism. Mutual fund inflows have been strong and more importantly, the pressure of redemptions on even insurance companies has come off. Investors on our retail desk too have seen portfolios appreciate boosting confidence in Indian equities.

Q) From an earnings perspective, where do you see the surprises and the disappointments?

Post 3Q, we have downgraded earnings for the auto pack as well as selective in the IT pack. In 3Q, we have been disappointed by earnings from companies in the utilities, energy, metals segments and selectively in automobiles.

Q) What are you buying for the long haul? Your top five stocks that investors can BUY for the next 6-12 months?

Axis Bank: The private sector bank is geared up to ride the next growth cycle with (1) strong capitalization (12.4% Tier I), healthy ROA (1.7%) and expanding liability franchise (2,558 branches – 18% CAGR over FY12-15). While high exposure to Infra remains a risk, steps taken by government to clear stalled projects and RBI (flexible repayment period, 5/25 structure) could ease risk in infra lending.

We expect PAT CAGR of 17% over FY14/17, and we believe all factors like well diversified loan book, low dependence on bulk borrowing, improved ALM, strong capitalisation and control over core PPP are in place.

Source – ET

Improvement in economic loan growth will not only lead to higher corporate loan growth, but also lower credit cost and high ROE. Buy for a target of INR615.

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