With valuations rising, Nirmal Bang cautious on IT and bullish on defence stocks

The market has been hitting all-time highs with the Nifty, Sensex and the Nifty Bank all rallying. The Nifty touched a record high of 18,669.2 for the second straight session while the Sensex climbed to 62,861.9, hitting a record high for the fourth straight session.

As is with any rally, the question now is whether the market is over-valued currently or not, about which the opinion seems to be divided.

In a conversation with CNBC-TV18, Rahul Arora of Nirmal Bang Institutional Equities said that the interesting question now being asked is what should be sold in such a situation.

“A lot of the conversations we are having with fund managers, instead of asking what to buy, they are actually asking us what should we be selling, which should probably give you a state of mind that money has been made,” he said.

The recently listed Bikaji Foods International Ltd has seen a surge of 37.7 percent in one week. Arora calls this rally 'scarcity premium'.

"There is no direct listed competitor to it on namkeens side. So it's probably getting a little bit of that scarcity premium." He says that the runway to growth for the segment is humongous," he explains.

IT Companies:  “The time to buy IT services will come," Arora said. However, he added that they might not have factored in the impending global recession fully.

"Even today, almost 50-60 percent of the businesses for Indian IT services companies come from the US and Europe and within that anywhere between 35-50 percent comes from BFSI,” he said.

Arora believes that in the current market scenario it would be wise to avoid anything with export exposure and instead focus on domestic themes.

Cement, banks and defence: According to Arora, cement, bank and defence could be interesting plays ahead of an election year.

"The Prime Minister has spoken a lot about defence, that could be an interesting play and maybe as a second or third-order beneficiary maybe something like an FMCG could make a comeback,” he said.