 "A rate-cut of 25 bps in June policy is already discounted: Rajen Shah")
Rajen Shah, chief investment officer (CIO) at Angel Broking is bullish on select mid-caps and defensive stocks. He expects global inflows to remain supportive, going ahead. Shah speaks to Aastha Agnihotri on his outlook on Indian markets. Edited excerps:
Do you believe that the current market rally is justified in terms of fundamentals? What is your target for Sensex for the current fiscal year?
We are positive on Indian markets from a long-term perspective. However, the short-term volatility will continue but the broad trend remains bullish. Currently, markets are trading over two-year high and the liquidity has been supportive all this while. This is due to extensive measures taken by the Finance Minister to bring back investor’s interest into the Indian markets. My one-year target is 22,000 for the Sensex and the five-year target stands at 45,000.
With Indian rupee at 55 versus US dollar, do you still believe India remains a lucrative destination vis-à-vis global counterparts?
Post the global policy easing, there is ample liquidity in the market and foreign investors will invest in countries where they see growth. Euro-zone still has a lot of problems while Japan will grow a little over a per cent and the US will be growing at around 1.75%. Spain, Portugal, Italy and Greece are yet to witness recovery. Investors will prefer to invest in India for better returns given that the growth rate here is much higher than in these economies. Also, I believe that the Rupee will not fall from current level of 55 and may stabilise around here.
What strategy are you recommending to your clients right now?
We are recommending our clients to invest in companies that have good corporate governance. There is an opportunity to BUY in this market from a long-term perspective. For next 3-5 years, we see mid-caps outperforming front liners so I would recommend investors to BUY on correction. In fact, 65% of an investor’s portfolio should include good mix of mid-cap and small-cap companies.
In your view, what will be the key events for the market?
Monsoons remain a crucial factor for Indian markets and good monsoons can take Sensex to 21,000—22,000 levels by the end of this year. The other key factor will be the elections. A hung parliament is extremely negative and will result in increased volatility whereas a clear-cut victory by either Congress or BJP will be a big relief for the markets.
How will market react if BJP-led government comes into power?
I think market will take that as a positive. Narendra Modi is doing a commendable job in Gujarat and he is expected to be the Prime Minister if BJP comes into power. He brought so much investment into Gujarat and he is capable of replicating this model at national level.
Do you expect any rate cut from the Reserve Bank of India (RBI) in the June 17 monetary policy review?
We expect policy action from the RBI in June as inflation has reached to four-year low. At least 25 basis points cut in interest rate is expected but this is already been discounted by the markets.
In your view, does India faces an immediate headwind of rating downgrade, if government fails to curb burgeoning current account deficit?
I don’t think we will see any downgrade as government is taking appropriate measures to tackle CAD. Gold is a major cause for ballooning of the current account deficit (CAD) and I think investors should not invest into gold as it is a non-productive asset. Moreover we are seeing increased interest from foreign companies to invest in India which will improve inflows.
What sectors are you bullish on at this juncture?
We are positive on agriculture, hospitality, healthcare and fast moving consumer goods (FMCG) sectors.
Do you have any stock recommendations in the above-mentioned sectors?
In FMCG, we like Tata Global Beverages on account of its joint venture with Starbucks. In the hospitality space, we recommend East India Hotels and in realty, it is Godrej Properties. Among small- caps, we suggest Finolex Cables and Essel Propack. We also like Reliance Industries. In the banking and insurance space, we recommend insurance firms such as Aditya Birla Nuvo and Bajaj Finserv.
Do you believe that the current market rally is justified in terms of fundamentals? What is your target for Sensex for the current fiscal year?
We are positive on Indian markets from a long-term perspective. However, the short-term volatility will continue but the broad trend remains bullish. Currently, markets are trading over two-year high and the liquidity has been supportive all this while. This is due to extensive measures taken by the Finance Minister to bring back investor’s interest into the Indian markets. My one-year target is 22,000 for the Sensex and the five-year target stands at 45,000.
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Post the global policy easing, there is ample liquidity in the market and foreign investors will invest in countries where they see growth. Euro-zone still has a lot of problems while Japan will grow a little over a per cent and the US will be growing at around 1.75%. Spain, Portugal, Italy and Greece are yet to witness recovery. Investors will prefer to invest in India for better returns given that the growth rate here is much higher than in these economies. Also, I believe that the Rupee will not fall from current level of 55 and may stabilise around here.
What strategy are you recommending to your clients right now?
We are recommending our clients to invest in companies that have good corporate governance. There is an opportunity to BUY in this market from a long-term perspective. For next 3-5 years, we see mid-caps outperforming front liners so I would recommend investors to BUY on correction. In fact, 65% of an investor’s portfolio should include good mix of mid-cap and small-cap companies.
In your view, what will be the key events for the market?
Monsoons remain a crucial factor for Indian markets and good monsoons can take Sensex to 21,000—22,000 levels by the end of this year. The other key factor will be the elections. A hung parliament is extremely negative and will result in increased volatility whereas a clear-cut victory by either Congress or BJP will be a big relief for the markets.
How will market react if BJP-led government comes into power?
I think market will take that as a positive. Narendra Modi is doing a commendable job in Gujarat and he is expected to be the Prime Minister if BJP comes into power. He brought so much investment into Gujarat and he is capable of replicating this model at national level.
Do you expect any rate cut from the Reserve Bank of India (RBI) in the June 17 monetary policy review?
We expect policy action from the RBI in June as inflation has reached to four-year low. At least 25 basis points cut in interest rate is expected but this is already been discounted by the markets.
In your view, does India faces an immediate headwind of rating downgrade, if government fails to curb burgeoning current account deficit?
I don’t think we will see any downgrade as government is taking appropriate measures to tackle CAD. Gold is a major cause for ballooning of the current account deficit (CAD) and I think investors should not invest into gold as it is a non-productive asset. Moreover we are seeing increased interest from foreign companies to invest in India which will improve inflows.
What sectors are you bullish on at this juncture?
We are positive on agriculture, hospitality, healthcare and fast moving consumer goods (FMCG) sectors.
Do you have any stock recommendations in the above-mentioned sectors?
In FMCG, we like Tata Global Beverages on account of its joint venture with Starbucks. In the hospitality space, we recommend East India Hotels and in realty, it is Godrej Properties. Among small- caps, we suggest Finolex Cables and Essel Propack. We also like Reliance Industries. In the banking and insurance space, we recommend insurance firms such as Aditya Birla Nuvo and Bajaj Finserv.