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market | IST

Positive on banks, IT; book profits in momentum stocks: Edelweiss Securities

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Aditya Narain, Head of Research-Institutional Equities, Edelweiss Securities, sees comfort in the banking and IT space. From a valuation perspective, banks have remained relatively modest, they haven't moved the way a lot of the other sectors have. As the economic cycle is looking better, the possibility of loan growth beginning to come through is much higher. Narain also believes that it is time to take some of the money off momentum stocks.

Aditya Narain, Head of Research-Institutional Equities, Edelweiss Securities, said, “When you have got so much momentum in the market which is out of the ordinary and is not aligned with a lot of global markets plus you have individual stocks just going through the roof, then it does make sense to take some money off the table.”
On momentum stocks like IRCTC, Tata Power that have created great wealth for investors, Narain said, “In a lot of these individual stocks and a couple of others, the kind of returns you have made have been over the top. So, it is only fair to take some money off the table on some of these. When you reach the market, which starts seeing what you could call irrational responses from stocks on the outside, it's time to be a little careful. And it is reflective of the entire market too.”
On the collapse seen in the midcap segment, Narain said, “Typically when markets move up so much, they also tend to get a little edgier. I think a bit of it has been triggered in the backdrop of very strong markets by the fact that a couple of large companies have kind of disappointed vis-a-vis expectations. Now those disappointments haven't been large, they aren't against the run of play, which is businesses generally looking better. But the fact that you had markets which have moved so much stocks, there is a little bit of skittishness in the market, and that starts playing through into stock prices when you do see some of these disappointments.”
He added, “It's a fact that large stocks have lost large value on the back of small misses, and that nervousness tends to extend to some of the smaller ones, or the ones that have moved up more sharply. Therefore, it is really a combination of that, rather than anything specific beyond that.”
“One has to remember, that these markets are elevated relative to the rest of the world and so to some extent, this is just natural that it will happen. We have, for some time, been saying that you just need to be a little bit more cautious at this point in time and the larger caps is where it's a little safer to be,” Narain mentioned.
He further said the two areas they would have comfort in would be banking and the IT space.
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With regard to banking, he said, “From a valuation perspective, we remain relatively modest, they haven't moved the way a lot of the other sectors have. Plus, the fact is that the economic cycle is looking better, so the possibilities and probabilities of loan growth beginning to come through are much higher there than in the case of the broader market. So, I think there is an underlying argument for them. Also, from a valuation and stock performance perspective, you have relative comfort there compared with the rest of the market.”
On IT space, he said they believe that demand cycle is assured over the next couple of years, so there is a fair amount of cushion that one has in taking stock calls.
For the entire discussion, watch the accompanying video