'Reform oriented budget will spur investment'

Devang Mehta, Vice President & Head - Equity Sales, Anand Rathi Financial Services in an interview with CNBC-TV18 spoke about his reading of the market and his outlook.

He also gave his views on the ADAG stocks, RIL, the infrastructure space, agri related stocks and Ranbaxy’s results.

He has, usually, viewed the budget as a non-event. "This time, my take would be that the budget will surely do something better for the current state of affairs."

Below is a verbatim transcript of his interview with CNBC-TV18’s Latha Venkatesh and Anuj Singhal.

CNBC-TV18: We are poised at around 5,500, as we go into expiry and the budget. What is your sense, will the market try to make a move up from these levels or should there be some consolidation now?

Devang Mehta: A lot of things would be taken forward after the budget is announced. I was struggling for better part of last week doing investor camps and it was heartening to see people still wanting to invest as they have cash in hand and they are always enquiring as to where to invest.

However, they may take sometime to invest because of the union budget and how the government takes reforms forward or how they may do some image resurrection in this scenario. A lot of things would now weigh on the budget which sometimes becomes a non-event, but this time, my take would be that the budget will surely do something better for the current state of affairs.

CNBC-TV18: How are you looking at the ADAG pack? Is the bottoming out that we are seeing for keeps, would you say that the valuation argument is now more compelling?

Devang Mehta: A lot of valuations or a lot of bad news are factored into the stocks. Reliance Infra, particularly, has a lot of negatives that are factored in and has one of the biggest order book sizes of a company which is into metro rail, infrastructure projects, real-estate projects, supplying energy to a lot of parts of Mumbai. Probably, a lot of negatives are factored in and as they have a long-term horizon, one could probably buy Reliance Infra for a longer-term.

CNBC-TV18: What about big boy Reliance itself, now very close to the Rs 1000 mark?

Devang Mehta: The stock has more or less traded between Rs 900 to Rs 1,100 in the last one-and-half year. Probably, now is the time where the stock can perform very well, seeing the huge cash that it has in hand, its debt-free status, the help that it will get from BP on the technological and the ENP front. If the market doing very well, Reliance Industries, probably, from hereon, should do extremely well, going forward. We also have a price target of around Rs 1,260 on a one year horizon.

CNBC-TV18: Would you enter this budget long or short?

Devang Mehta: Difficult question to answer, but sector or stock specific, we would focus more on agricultural themes, fertilizers irrigation, infra finance and education. One can be long on these stocks and I feel they won’t get disappointed.

CNBC-TV18: We have seen big surge in crude prices, more than 10% in the last couple of days. In the past, whenever we have seen crude spike, the rate sensitive’s underperform, especially, banks and autos. What would be your call on these two sectors at this point in time?

Devang Mehta: On autos, we also feel that it can continue its stream of underperformance, as it has been a stellar performer last year. With the high base effect coming into picture, the interest rate on an upturn and crude prices spiraling upwards, these are difficult times for autos ahead. Already the margins are in pressure. Going forward, we can also see sales being curtailed to a certain limit. For banks, these are not very difficult times yet.

CNBC-TV18: What did you make of the Ranbaxy numbers? Do you think the bad news or the disappointment on sales is in the price at Rs 472?

Devang Mehta: Yes, the results were not up to the mark. It was below our expectations. A disappointing set of numbers from Ranbaxy.

CNBC-TV18: What about infrastructure stocks either because of what you expect in the budget or because they have been beaten out of shape. Are you looking for bargains in that space and if so which?

Devang Mehta: I feel there are a lot of value buys emerging out of the infrastructure space, something like an IRB Infra, GVK Power, GMR and IVRCL. All these are currently dirt cheap and if somebody has a two-three year horizon then the cash flows would start coming into these companies in the next few quarters, as the government announces a lot of spending and road projects. This space can be the next theme which one can select.

CNBC-TV18: One repeated theme that has kept on emerging is that a lot of inflation, especially, on food, is a supply side issue. It will not be farfetched to expect some package for agriculture. Would it be ideal to go long on agri-related stocks? If so, which ones would you bet?

Devang Mehta: On agri-related themes, it would be safer to buy something like Tata Chemicals, GFFC and Jain Irrigation. All these stocks could be beneficiaries of some things which would be announced in the budget which could take the agri-theme forward.