Sandip Sabharwal, Prabhudas Lilladher foresees 12-15 percent upside for Indian equities from the current levels by end of this year.
"The US markets are at all time high, German markets are also at all time highs, a lot of emerging markets are also moving there. That combined with the macro situation in India, which is showing improvement. The overall emerging market basket as such also looks poised for an up move over the next four-six weeks and India should participate in that," he said in an interview to CNBC-TV18.
Meanwhile, sharing views on Cobrapost's allegations on banks for money laundering, he said, this would not be long-term negative for banking stocks. "The allegations seem to show some transgressions happening at branch levels and therefore it doesn’t change the picture as far as investment thesis for banking stocks goes," he added.
Among non-banking financial companies (NBFCs) Mahindra and Mahindra Financial Services and Bajaj Finance are expected to do well.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: How will you read the market? We have had a pretty strong run up in the past two-three weeks. Do you see significant up move from these levels above the 6000 mark on Nifty?
A: We have had an up move over the last few weeks and that was preceded by significant down move. So, we are marginally up but not much from where we were at the beginning of the year.
Putting that into context and also taking into account the fact that we see today with the US markets are at all time high, German markets almost at all time highs, a lot of emerging markets are also moving there. That combined with the macro situation in India where I believe the overall macros are improving for the stock markets per se, we could see some more up move going forward.
The overall emerging market basket as such also looks poised for an up move over the next four-six weeks and India should participate in that.
On one side we have positive macros coming through but on the other hand we have political situations where things are pretty uncertain on the governance part. This week the parliament will adjourn and the Supreme Court will have a six-seven week break after this week that could give some relief for the government to take some action on the economic front. Therefore that could also aid the market on the up move.
Q: As an investor how will you approach these Cobrapost allegations? Will that be any reason to downgrade earnings or to not buy any of those stocks because now everyone is in the net?
A: I don't think so because if one goes through whatever has been shown and actually the expectations had built up very significantly prior to today about something big coming through but they seem to be similar to things that came out earlier.
It shows transgressions happening at branch levels and at levels where people are trying to prove that they can be more helpful than they actually can be. To that extent structurally it doesn’t change the picture as far as investment thesis for any of the banking stocks per se goes. I don't think as an investor you will take a very long-term negative view on this.
Q: Coming to the earning season, what have been your hits and misses so far?
A: Hits have come from few auto companies where the companies have shown resilience in margins. So we have seen margins expand although the top line growth has not come through. Those companies have done well.
The private sector financials have done very well, where we have seen that NIMs (Net Interest Margins) have expanded, the asset quality has remained under control, which has been a positive.
Disclosure: Lot of the stocks discussed could be Prabhudas Lilladher's in portfolios.
Q: Reliance Communications has had a fairly strong run. How would you approach that stock now?
A: I wouldn’t approach that stock at all and I haven't approached it in a long time. It is very difficult to say what makes the stock move, so I would give that a miss.
However, other telecom plays are better to evaluate. The domestic operations both for Bharti Airtel and Idea Cellular have done pretty well. So telecom could be one sector which could do well just because it is bottoming out and it is a very under owned sector. So we could see some flows coming through into that sector.
Q: Which banks are you still a buyer in?
A: ICICI Bank looks pretty well positioned and we have that in our portfolio. State Bank of India (SBI) could be interesting from here on because that has underperformed significantly. So if we see decent net interest margins (NIMs) coming through from SBI along with some write backs in the results that could be taken positively.
Among the smaller ones IndusInd Bank looks well positioned. It is in the index now and it is also under owned, so there could be some flows coming through into that.
From the Non-bank financial companies (NBFCs), some serious bank plays like Mahindra & Mahindra Financial Services or Bajaj Finance could still do well.
A: I won't bet on any of these because we are seeing stress in terms of growth and we will see some stress coming through going forward. Most of these companies have shown margin expansion because of low raw material prices as well as cut in ad expenditure.
Volume growth seems to be under pressure. Some of the MNC names will remain supported because of expectations of buy backs. So overall the sector looks pretty richly valued and should be underweight on this sector and in the portfolios.
Q: For the market as a whole what is the kind of gains you are looking at if you can put a number to it?
A: By the end of this year that is 2013 from where we are, we are actually flat since the beginning of the year and my expectation was of 12-15 percent return. I don't think anything has changed which should change that thesis and so we should still see 12-15 percent from here till the end of this year.
Q: Besides the areas that we discussed, financials, autos, telecom, what are your favourite picks in the big space? Oil and gas any picks or any of the others?
A: In oil and gas stocks like Reliance Industries or Oil and Natural Gas Corporation (ONGC) could benefit. ONGC could benefit as its subsidy sharing comes down, Reliance Industries has got lot of negative news over a long period of time but with their telecom venture coming through now, some positivity coming on exploration front, it could benefit.
Even for Cairn India there are expectations that there could be some more discoveries as their exploration plans get cleared. So all of these stocks could have some newsflow coming through for them which could actually support these stocks and these stocks could do pretty well.