Bulls took a breather after yesterday's power packed rally as weakness in European markets and profit booking dented sentiment. The Nifty closed at 4,582 down 71 points, while the Sensex shut shop at 15,422 down 275 points.
Deven Choksey of KR Choksey Securities said the Sensex is likely to trade rangebound between 14,700 and 15,900. "However, there will be selling coming in at higher levels."
According to Choksey, investors should stay invested in quality stocks. "They should book profits at higher levels, even if they are earning around 5-10% and re-enter again. Investors should accumulate good quality stocks at lower levels."
Excerpts from CNBC-TV18's exclusive interview with Deven Choksey:
Q: Are we running into a resistance at higher levels?
A: Yes, close to around 15,800, the Sensex was expected to find some selling pressure. Some of the Asian markets also got some warning calls from the European markets. FIIs are getting a little negative about the Asian markets and are pulling out the funds as and when they see an opportunity. It would have happened earlier but for the advance tax numbers that came in and they were quite encouraging.
Out of around a dozen or so companies listed in the Sensex, the advance tax numbers had 25% growth, which is quite encouraging and delayed this particular fall. But otherwise, this is a profit-booking fall. It also can be seen from the portfolio churning at some of the local mutual funds in the IT stocks. They are getting out of IT and are probably getting into some of the smart capital goods stocks. That is why there is a profit-booking at the higher levels in the banks. That is the reason for this fall today.
Volume is also high and we need to see how this particular fall over a period of next few days would turn out to be. But we are still in a range 14,700 and 15,900 on the Sensex on the higher side. We will remain in this range and see selling at higher levels and the support buying at the lower level, unless a major negative happens. So, this range should hold.
Q: What about the momentum stocks? All of them are down 5% to 6% a piece and even traders are loosing heart that this rally can last very long?
A: The conviction is certainly missing. People want to get into the momentum stocks the moment they see some ray of hope as far as the upside is concerned. Traders are trying to play very cautiously. These are the general trend we see among the traders. People are more careful about trading in technical levels and that is where the profit booking also takes place.
Q: What about cement? After a long time there has been some buying. Do you think it will sustain?
A: I do not know. The Holcim Group has shown keen interest to buy further quantity of the listed companies-Ambuja and ACC-from the market. Ambuja would be the first one to probably attract that kind of a buying from the group. Maybe Aditya Birla Group in the past had indicated that they would like to buy at lower levels and consolidate their holdings. So, the rally in the cement stocks is more than the institutional or the other players.
Q: What is the problem? Has there been talk of some institutional selling once again at higher levels or is it just the traders who are just switching out after two days of an upmove? What was cause the pressure today?
A: It is more of traders. Institutions have not been seen selling in a big way. Though they have been reluctant in buying aggressively, they have not been coming forward to sell. We saw that some of the institutions, particularly some of the mutual funds, are getting out of the IT stocks. They essentially book profits to the earlier purchases that they had made about 1.5-2 months back and they are just switching over.
Of course, they are not taking money. They are switching over this money into the capital goods segment. That is what we saw from the Indian mutual fund side. But we have not seen them panicking in the market at higher levels and selling it out completely. On the contrary, they said that they would like to add quality stocks in their portfolio. So, there is a buying appetite but a cautious approach is seen at the current levels.
Q: Is the rally over for banks?
A: I wouldn't say it's over. Valuations are far more attractive. The last two days of the rally seen in the banking stocks was largely on the buzz of higher advance tax numbers that the banking companies have paid, which promises to bring out better performance in this quarter. So, to an extent it was justified. But because it is not sustaining at higher levels, people are selling off their position and playing safe in this market.
I do not see anything wrong in the banking stocks unless they start finding lower credit offtake which is unlikely. A lot of banking majors are saying they do not find too much of drop in the credit offtake. So, to a greater extent, the business stays as it is. There may be some pressure on margin, if they cannot increase the interest rate. But otherwise it remains as it is. Valuations are justifying as well. If at all they cannot increase the interest rate; they are on lower side. So, we will have to wait for lower levels to buy banking stocks again.
Q: What are you telling your clients to do in this kind of a market?
A: We are asking people to stay invested in quality stocks. Whenever extra money has to be put in, we gradually put in the falling market and never stay invested in 100%. Some of the clients are definitely interested in booking some amount of profits. So, we encourage them to book profits at the higher levels.
Even if your stock is earning 5% to 10% more, exit. This strategy is not universally applied and is dependent on client to client. But largely we follow this strategy and tell people to accumulate at the lower level some of the quality stocks and get a model portfolio and put across this portfolio to them so they can easily use it in a market like this at the level in which they should be entering into.
Q: How would you approach a couple of sectors that stood out today-cement and media? Would you be cherry picking here or do you just attribute this to routine churning?
A: Cement is more of a creeping acquisition exercise, which is going on and probably in the days to come we will know about the exact quantity. I would not touch it currently. We would probably avoid it for the time being.
Media is not clear to me on the valuations. So, I definitely will not touch it. Interesting sectors would be the neglected ones probably currently under the fear, which is the capital goods segment. There are certain stocks available in some of the telecommunication space. They are also equally interestingly placed.
At the same time, a couple of banking companies particularly from PSU space and in the private sector space are quite interesting on the valuation. In a falling market, gradual buying into these companies would be the choice that I would exercise at some point of time in this market.
(Source CNBC)
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