8-10% upside for Nifty is on the cards: Nirmal Jain

Interview with chairman, IIFL

March is packed with important events such as the Union Budget, Monetary Policy etc. Do you think that our markets could now trend down after the rally seen since January 2012?
The market fall in the last few days may well be just a correction after the rally this year. Equities across emerging market have been rising on the back of abundant liquidity and decreasing risk aversion globally; a scenario unlikely to end March.

The monetary policy may add fuel to the rally in case a cut of 25-50 basis points comes through in the cash reserve ratio (CRR). The Union Budget outcome is uncertain due to size of the deficit on hand and likely populist measures to woo the vote bank.

Having said that, there is every chance that some good measures go through because the government wants to send a strong signal to its critics. Therefore, it is unlikely to scare away the high fund inflow Indian equities are witnessing currently.

The market movement in 2012 will depend on the news from the global economy and the government’s policy direction.

What are your calendar year end targets for the Sensex and the Nifty? Which sectors/themes, according to you, still offer value from a medium term perspective?
It’s difficult to give year end targets for the Nifty or Sensex. For the near-to-medium term, however, a further 8-10 per cent upside for the Nifty is on the cards. It is advisable to be stock specific in present times. If we talk sector wise, Financials, Consumption, Auto and Cement related plays look promising from a medium-term perspective.

Can you highlight a few good fundamental stories within these sectors/themes?
Our bottom-up picks are ICICI Bank, HDFC Bank, Axis Bank, Bank of Baroda, Tata Motors, Maruti Suzuki, Bajaj Auto, GSK Consumer, Shree Cement, Hexaware Technologies and TCS.

Rural India will continue to be the growth driver given the RBI’s strong intent to increase lending to the agriculture sector, continued rise in MSPs and rural employment guarantee schemes such as NREGA. Mahindra and Mahindra and Hero MotoCorp will be the biggest beneficiary of the same.

MCX IPO got a good response from the market and ONGC’s follow-on offer (FPO) may be just round the corner. Do you see a good appetite for new issues among the retail investors, and perhaps a sign of a revival of the primary market?
Not for all issues, but given the current uptrend in equities, good quality issues will receive a good response. Retail investors will look to participate through the primary market route.

What are your top three expectations from the upcoming Union Budget?
One big measure likely to be announced will be the increase in personal income tax exemption limit to Rs 300,000 from the existing Rs 180,000. Raising the exemption limit will be a move in-line with DTC objectives, boost consumption and populist too.

The Budget may also provide a roadmap for implementation of DTC and GST. While corporate taxes are expected to be unchanged, there could be some changes to MAT application in certain areas like SEZs.

Coming to indirect taxes, we do not see any increase in service tax, peak customs and excise duties this year; the service tax net will be widened though. Besides subsidies on food, oil and fertiliser, interest subvention for exports is likely to be extended till 2013.

The other major development expected is the introduction of the Mines and Mineral Bill, which will compensate people affected by mining projects. Measures to promote agriculture growth and infra status to one or two sectors from telecom, aviation, healthcare and education, is on the cards.

How do you see the commodity space, especially crude oil, panning out in 2012?
In the coming months, the abundant liquidity will find its way into commodities. Crude oil prices have climbed higher underpinned by existing supply side constraints and rift between Iran and the West. Oil is likely to remain at elevated levels in 2012.

Gold prices too can move up to $1880-1920 due to multitude of factors, including resurgence in Euro, geopolitical uncertainty and improving investor sentiment.