Reliance and TCS could take markets to new highs: Harendra Kumar, Elara Capital

Nifty will try to retest the new highs in the next 90 to 100 days. It will be driven by Reliance and the tech pack, Harendra Kumar, MD–Institutional Equities, Elara Capital, tells ET Now.


Edited excerpts:

India has upped import duty on some chemicals but what is the whole impact on the imposition of tariffs on imports of steel and iron ore?

India’s major surplus from the US is not from steel and iron, it is more from software services. It is not impacting India domestic steel manufacturers so much. In fact, rupee depreciation is a positive and the overall global rise in steel prices are a big variable, given that our local prices are reset on import parity.

The overall move towards increasing tariffs worldwide means that the average selling price worldwide is increasing with real demand. India is the only place where actual demand and steel prices are nudging upwards. Overall, in this game, India stands to benefit at least on the metal side.

Is it too early to assess the net impact of these tariffs being slapped across the world? What about its effect on global growth, on growth in the US and China as also the net impact on India as well?

The net impact is being felt today in the markets. The way China is falling off the radar and India outperforming emerging markets means that the market is recognising that we are a domestic-oriented economy and quite resilient from the pyrotechnics of global trade wars. The effect could be very positive for the Indian markets and this reflect in how the Nifty has been holding up.

How should one approach oil PSUs? Nomura in its latest note believes that they are attractive after the recent correction. Do you find merit in looking at OMCs right now?

For that we have to track the crude actually. The selloff happened when the government went into a silent mode while crude was going up. They did not clarify their position on marketing margins or for that matter on how petrol prices will move up. What the OMCs can do in this situation, what the government intends to do and whether they would want the OMCs to keep the profits etc.

Because of this uncertainty, the stock prices have come off. Till the crude price uncertainty continues on where it is going to settle, one should stay away from OMCs. They always look attractive and cheap at certain price levels but we have to understand the global dynamic of a deflationary trade over a falling crude price, falling interest rate is over. In the next two to three years, you might see interest rates going up and crude or commodities remaining firm.

In that context, we are not so comfortable with OMCs holding up. Gas is a much better place than OMCs.

Within gas names, would you be stock specific?

That space is pretty much categorised. CGD companies with steady volume growth like Indraprastha Gas or a Mahanagar Gas. An interesting story is emerging in Gujarat Gas and Gujarat State Petronet, given the differential in fuel oil where the migration from fuel oil to gas is happening. The stocks are cheap as well. Plus, there is an industry revival which is reflecting in volume growth. Frankly, Indraprastha Gas or a GAIL are structural buys. You have two extremely cheap stocks that could generate more alpha than some of the other gas names.

Where are you building conviction in the market right now? Are you advising clients to stay off because the markets are largely going to be range bound? Where do you see an alpha opportunity?

Between Reliance and TCS, the market will go to new highs. The context remains the same. The broader Nifty could struggle but Nifty will try to retest the new highs in the next 90 to 100 days. That will be driven by Reliance and the tech pack. This is where a lot of value plus a rerating momentum continues. In the rest of the index space, private banking looks very strong, This is where potential trading action is going to be over next 3-4 months.

What is your take from a common investor perspective?

The market landscape is changing. There are select opportunities for some midcaps but you have to be selective out there because as we have seen in other midcaps the scalability of midcaps beyond a point of time becomes questionable. One will have to cherry pick and be very, very selective. There is still some value in some of the IT midcaps which are trading at very low teens PE multiples but so also some of the large cap names. While the midcap rerates the large caps continues to look very attractive. While we stay selective in midcaps, a larger trade is available on some of the large cap names.

Is there merit in relooking at ICICI Bank or Axis Bank as there is clarity on which way the top leadership is going to head?

I would still be cagey about ICICI Bank. I had mentioned before the results as well that the stock is over owned. All the triggers have played out in terms of listing of all the subsidiaries but the stock has actually not delivered. The placement of a new COO would mean that you are wishing away the complexities of the resolution of this problem. I am not too sure. Frankly for me, alpha is coming from IndusInd, Kotak or an HDFC Bank. There is more alpha generation there than potentially some of the names that you have mentioned. We would like to be overweight on the other three that I have mentioned rather than ICICI Bank or Axis Bank over the medium term.

What would be your top avoid in the market right now or best bet for profit taking in some pockets?

People are trying to bottom fish in pharma. It was a trading pop that you just witnessed over some days. There there are no structural changes that could drive return ratios or top line profits. I would say that companies that are over owned and still potentially stuck. in these names one can look for liquidation.