 "India still a bright spot in cloudy global market scenario: Gaurang Shah")
After the US Federal Reserve (US Fed) kept key rates unchanged, all eyes are now on the Reserve Bank of India (RBI) to slash rates in the upcoming policy review next week. Gaurang Shah, vice president, Geojit BNP Paribas Financial Services in conversation with Indrani Mazumdar, spoke about street-expectations from domestic and global events lined up going ahead and the sectors that he believes are likely to do well. Edited excerpts:
Is the worst over for the Indian stocks markets? What levels do you see for the Sensex by the end of calendar year 2015?
I don’t think so that the worst is over for the Indian stock market since it is governed by the global and local cues. Post the RBI Monetary Policy review next week, we have the earnings season and Bihar state election that will impact sentiment. Markets will trade with some amount of nervousness given these local events.
On the global front, we still have issues to deal with China. Greece has re-elected the party that was opposed to any kind of changes as far as the austerity measures are concerned. So, we are caught somewhere between the devil and the deep blue sea.
However, India still remains as a bright spot in an otherwise cloudy market as far as Asian and global markets are concerned. From a long-term viewpoint, investors should use corrections as buying opportunity looking at certain sectors and stocks with large-cap in mind. By the end of calendar year 2015, I expect Sensex to trade in the range of 28,000-30,000.
With the US Federal Reserve’s stance of keeping interest rates unchanged in the back drop of global economic slowdown, what impact could it have on investments by foreign funds?
I feel the slow poison of US Fed raising rates has already been there in our system for a long time. Now, whether it happens in December or the first calendar quarter of 2016 that remains to be seen. But even if it happens anytime during this time, my sense is that large part has already been discounted and a 25 bps increase by the US Fed is not going to translate into huge outflow from our markets. Therefore, we would react and then counter react and I believe we would be the first ones in terms of equity markets to emerge from those correction in case if there is any.
India has outperformed the other emerging markets in the recent past despite a sharp decline in the Chinese equities. Will India be able to insulate itself if sell-off in the emerging markets occurs?
If tremors occur in the global market, we will definitely feel the aftershocks. However, I feel, India will be the one to recover faster as compared to others. The major reason behind it is that we are in a top down interest rate scenario and our currency is stable.
We expect policy changes to occur as and when we have state elections unfolding and if the outcome of the state election favours BJP, it will be all the more positive as the right noises are sent across by the central government to the investors in the oversea markets for investment. Also, lower commodity (metal) prices as well as drop in the crude oil has favoured the Indian economy in terms of reduction in the fiscal deficit. Therefore, I suggest, it is the best opportunity to enter the markets.
What is your call on defensive sectors such as IT, pharma and FMCG? What are your top picks in each of them?
Defensives are value creators and have outperformed the other sectors in the last two - three years. One should definitely buy during correction.
In the IT pack, our top picks are Infosys, TCS, HCL Technologies, Tech Mahindra and MindTree. In pharma space, we recommend Sun Pharma, Lupin, Aurobindo Pharma, Dr Reddy’s Lab and Glenmark Pharma. In the FMCG pack, our top bets are HUL, Godrej Consumer, Dabur India, Marico, Emami and ITC. That apart, oil marketing companies, cement and private banks are the priority sectors one should have on their radar.
Do you like any stocks in the mid-cap space?
In the midcap space, we recommend Kotak Mahindra Bank, YES Bank and IndusInd Bank from the private banking space.
Has easing consumer price inflation data along with favourable macro-economic numbers and advancement in monsoons created enough room for a rate cut by the RBI in the forthcoming monetary policy? What is your take on rate sensitive stocks?
All the domestic data favours the rate cut but the quantum is a big question. If it is a 25 bps rate cut then the markets will react and then pare gains; but if it is a 50 bps rate cut then we are in for a party. However, by December we expect a 50 bps rate cut. Among the rate sensitive stocks, private banks should be preferred by the long term investors and in the realty space, we recommend Godrej Properties, Mahindra Lifespace, Sobha Developers, Prestige Estates and Oberoi Realty.
What is your call on the rupee at current levels?
The rupee might weaken further but only for a short term. We are broadly expecting the rupee to trade in the range of 65-66.50 against the US dollar.
What is your outlook for second quarter earnings?
We should be in a better state since the data points are indicating towards a bottom up approach on the earnings. If the rate cut comes through more than expected, it will improve the earnings as well.
