Q&A: Ambareesh Baliga, Vice-President, Karvy Stock Broking

'Bet on contra calls, be choosy'

This is not a market for investors, Ambareesh Baliga, vice-president, Karvy Stock Broking, tells Dipta Joshi, adding stocks that have not moved so far may outperform in the longer term. Edited excerpts:

What do you make of the recent fall in the stock market?
The correction in the market was overdue. Even during the uptrend, the mood was cautious. For every high, investors were booking profits. We believe the Nifty moved 25 per cent beyond its intrinsic worth, which is up to 5,000, considering the second-quarter results. What we noticed was that despite good results, a number of stocks did not move. This shows the best had already been priced out.

Although foreign institutional investors continue to buy, if the market moves below a certain level, the hot money coming in for the last two-three months will be reversed. The trigger point for us is the Nifty’s level at 5,800. Finally, any market oscillates around its intrinsic worth. We are advising clients to be choosy at this stage. Given that the overall market is trading at such high levels, one should not invest. It is a trader’s market.

What should retail and high networth individuals (HNIs) do?
One must have a clear objective before investing. While HNIs have a team of advisors, brokers and others, retail investors have no strategy. They want to make money, and that’s where they go wrong. An investor may end up being a trader, or it is the reverse when one has made losses.

Brokers or advisors like us cannot give the right advice unless we know what the objective is. If you trade without a trader’s mentality or lack patience, you will make losses.

There are some contrarian bets that retail customers can look at. These are stocks that have not moved so far, and may not move in the coming months. But if you have one-two years outlook, these could outperform. One can buy these in small quantities.

Investors should keep aside some cash because the market can come down further in the near future. When this happens, even the best stocks will see some fall, and investors can average out at lower levels.

Investors can also look at decently priced initial public offerings.

Which sectors are you bullish on, and which ones are you avoiding?
On a three-five years time-frame, banking and auto sectors look interesting. But we feel there is no sense in buying these now and staring at losses. Three months later, when the market corrects, we expect these to correct heavily because they have risen the most.

I think the issue with the banking sector is credit growth, and going ahead, the asset quality can also be a problem. This will be especially true with public sector banks where credit growth is not taking place at the earlier expected levels. Looking at the interest rate scenario, treasury income can be hit, and there will be pressure on margins.

So far, the price points for the sector have factored in the positives only. When any of the above negatives start ticking in, you will see a correction. On a 15-20 per cent decline, these are the sectors to invest in.

We have a contra call on both infrastructure and capital goods sectors, which we feel are still fairly valued.

What we are clearly avoiding is the realty sector, since the inventory build-up, along with high property prices, are not sustainable.