 "Siddhartha Khemka, Head – Equity Research (Wealth), Centrum Broking")
Indian markets are witnessing strong buying demand with the benchmark Nifty hitting 2016 high. Siddhartha Khemka, Head – Equity Research (Wealth), Centrum Broking, tells Surabhi Roy that Indian equities could outperform some of its global peers if monsoons do not disappoint. He expects Q4FY16 earnings to be tepid. Edited excerpts:
What is your call on the markets in wake of the sharp rally since March? What range do you see for the Nifty50 from current levels over the next six months?
The market is likely to be in a brighter spot by FY17-end compared to what it was at FY16-end. With Fed unlikely to raise rates this year and an accommodative RBI policy, liquidity should get a boost. Positive economic data, stable commodity prices and improvement in corporate earnings in the second half of the year should be positive for the market. Also, year-to-date, FIIs have been net buyers in domestic equities. If monsoons do not disappoint and are above normal as predicted by IMD, Indian equities could outperform some of its global peers.
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Niche NBFC, road construction, Power T&D – EPC, consumption, exports, cement, speciality chemicals are some of the sectors that are likely to do well. Some of the stocks that we like among these sectors are Repco Home Finance, Sundaram Finance, Ahluwalia Contracts, J Kumar Infra, MM Forging, JK Cement, Welspun India, Techno Electric.
What is the likely impact of easing global crude oil prices after OPEC and non-OPEC producers failed to reach a deal to freeze the oil output? Can it trigger a correction in the global equity markets?
The correlation between the crude oil prices and global equity markets has increased significantly in recent times and as a result a fall in crude price could dampen the near term sentiments. The impact of lower crude oil prices would be mixed on different countries.
While oil importing nations like India and China would benefit from a lower import bill, oil exporting economies would continue to reel under pressure. A prolonged weak crude would not be beneficial for the global economy as it not only reflects weak demand (resulting from slower economic growth) but also deterioration in the finances of oil producing nations.
The Rupee has been one of the worst Asian currencies so far this year. What is the near-to medium term range you see for the currency?
The rupee is expected to remain range bound in the near-term. The dollar has been weighed down by Fed’s dovish tone and easy monetary policy and this trend is unlikely to change anytime soon. The rupee should benefit from this fall in dollar and also led by the strengthening of Indian equity markets. However, in the long term, the rupee generally depreciates against the dollar and that trend is unlikely to change.
What is your take on inflows from foreign investors after they pumped in over $1 billion in April so far, buoyed by the recent rate cut by the Reserve Bank and hopes of a good monsoon?
India should see decent foreign money inflows this year. Liquidity should be abundant given easy global monetary policies. FII interest in emerging markets (EMs) is making a comeback and India will definitely benefit from increased money allocation to EMs. India’s GDP growth is expected to be the highest among EMs. This along with the likely improvement in corporate earnings would attract foreign investors. Also stability in commodity prices could help in stemming outflows especially from funds of oil producing nations. People are feeling more confident about the India growth story so money inflow shouldn’t be a problem.
What are your expectations from the fourth quarter results of India Inc? Which sectors / companies in your opinion can exceed expectations? Which ones could be the laggards?
Q4FY16 earnings are likely to be tepid. It will take a couple of more quarters for India Inc results to bounce-back. RBI’s latest move, healthy economic data and a good monsoon should gradually translate into good corporate earnings, but that is more likely in the second half of FY17. Some of the sectors like select IT, NBFC, auto, speciality chemicals should deliver a good set of numbers. Banks, consumer sectors and pharma earnings could disappoint.
The broader markets have more or less outperformed the benchmark indices off late. Do you see the momentum continuing? Which stocks are looking attractive in the mid-cap space?
The midcap space should continue to do well but one has to be careful when picking stocks. Financials, valuations, business model, quality of management have to be taken into consideration when picking a midcap company. Some of our picks in the mid cap space include stocks like Siyaram Silk Mills, Sanghvi Movers, KRBL, Bajaj Corp.
