Liquidity flowing back into secondary mkts: Kotak Sec

Liquidity flowing back into secondary mkts: Kotak Sec Shashank Khade, Vice President - Portfolio Management Services, Kotak Securities, said the liquidity is again trying to flow back into the secondary markets after the listings of IPOs. He thinks if the market rallies sharply ahead of the Budget, one has to look at it from a profit-taking point of view, reports CNBC-TV18. Excerpts from CNBC-TV18's exclusive interview with Shashank Khade: Q: What is your own sense in the run-up to the Budget? Do you think that we will move into a range or you could make a strong case for significant outperformance, perhaps even testing 21,000, given what we have seen over the last couple of days? A: My sense is that this was a question of liquidity that got stuck up in the Reliance Power IPO. A lot of money seems to have come back into various investors’ accounts. The liquidity is again trying to flow back into the secondary markets. People are trying to look at pockets of opportunities, specifically where stocks are significantly off the highs, like in the first week of January. Based on that, investors are taking a call to invest in various stocks and I think the money has come back into the secondary market right now. But if you look at it from the point of view of the earnings season, one concerning fact that came in is that manufacturing may slow down. A lot of companies seem to be delaying their finalisation of any orders. If this trend continues, there could be an impact where construction companies as well as capital goods companies may tend to see incremental order book slowing down. If one sees that trend going forward, I think the P/E multiples and the valuations at which these companies are quoting at, may see some sort of moderation clearly based on 2009-2010. Most of these companies have priced-in growth not only in 2009 but also 2010 Q: We did see some kind of earnings slowdown; you are referring to some telltale evidence of postponement. There is also the global blues that are not going away, the export sector could do much worse given the reality of a global slowdown, if not actual recession in some parts, and then FIIs have been on a net sell mode. We don’t really know the figures for today are, but there is that factor to contend with when we talk about liquidity. Therefore, would you use this rally even if it went to that 21,000 level to actually take profit or do you see this rally sustaining over the next one or two quarters? A: I think if such a rally happens sharply ahead of the Budget, it has to be looked at from a profit-taking point of view. In case, if it is sustained over a period of one quarter, that would be great. But my sense is that scepticism is back. Normally the markets keep moving up based on scepticism. In case if people are convinced in terms of earnings growth, and the way forward, then of course, there is an issue in terms of whether the markets can really scale-back again strongly and go back to the highs that they achieved in January. If the markets keep crawling up on scepticism, it is actually good for the markets. But I don’t see that happening at all. The way the markets have bounced-back today, clearly shows no inkling of any scepticism across the board. Q: You were talking about pockets of value. Would real estate and specifically midcap banks fit into that, because they have staged a remarkable rally in trade today. It is too early to comment on whether it is sustainable. But are these pockets of value that you would look at, at this point? A: Value right now resides in sectors that have been out of favour for the last one year, and if you look at FMCG, it is one such sector. Technology, that has been beaten down, has been another sector where clearly value resides relatively as compared to market valuations. So, I think these two sectors may stage a bounce-back, in case, if people really tend to rotate between sectors. Looking at today’s rally, it doesn’t look like it at all. I think the same stocks are coming back into favour. Q: You said that it is quite possible that you are going to see a burst of activity before the Budget and then perhaps some quiet. If you are going to use that rally to sell, what would you be selling out of? A: The construction companies that are valued aggressively based on 2010, one needs to really take a call on pruning down the exposures. Capital goods, if one has got an inkling of a possible slowdown in order book in the next couple of quarters, those are clearly the ends where one needs to sell-off. One needs to take profit off utility plays where valuations can’t be really justified. One would tend to look at companies that are implementing infrastructure projects, where visibility is pretty strong and most importantly, valuations are on your side.