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FII flows into Indian mkt likely by July: Asit C Mehta

Posted by sandhyaravii on June 22, 2012

Given the rupee weakness, Prakash Diwan, Head – Institutional Clients Group, Asit C Mehta Investment believes that there will be a scramble for safety with investors opting for defensive plays such as pharmaceuticals and FMCG counters.

However, he feels that once the local and global issues come to rest by July, there could be a lot of money coming to emerging markets and particularly the Indian market.

Below is an edited transcript of his interview. Also watch the accompanying video.

Q: Cement stocks have already lost anywhere between 3-5%. Do you expect further weakness in the likes of a JP Associates, ACC, Ambuja Cements and what would you do with these?

A: What we have seen with the cement stocks is the initial kneejerk reaction of the downward sentiment thanks to yesterday’s outcome. But once the cement companies get in a position to challenge this particular order and start looking at it from a different angle, the Supreme Court and Appellate Tribunal will definitely take some time to give their final verdict on this.

Meanwhile, there could be some value buying that could step in; cement, after all, is not such a bad sector. In fact, it’s difficult to figure out in terms of what could be the outcome post this order in terms of the pricing and realizations. But given the demand supply gap, it doesn’t seem to be very attractive from a valuation perspective. But I think lower levels that we are seeing now after this order could probably make some sort of nibbling happen at some juncture.

Q: Where are valuations and prospects attractive at this point in time? Do you stick with the defensives, consumers or would you now start looking at oil refiners or autos because of the obvious commodity advantage?

A: Given the sudden weakness that the rupee has attracted for itself, there will be a scramble for some sort of safety, some sort of defensive element in the portfolio. So I think very clearly, it will be back to the pharmaceuticals and well run FMCGs. But again, from a valuation perspective, is it the right time to pay that kind of huge premium? My answer to that is probably not because the moment the government starts getting into some sort of an action, there will be enough – last time also, I mentioned there is enough on the infrastructure side, enough on the aviation and retail side, the power sector side that could be done within its means.

So if that would happen now, this is a level which is so attractive for foreign investors to actually come in. Let the dust settle in the US, let them get their act together and I am sure come July, there could be a lot of money coming to emerging markets and particularly our markets. So I won’t pay too much of a premium getting into the FMCGs. I would separately look at these low value stocks, which have been oversold specially from the cap goods, retail, engineering side. So that’s a huge opportunity that exists –very stock specific at this point in time.


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