Dhirendra Tiwari, head of research of Antique Institutional Equities believes that the market will be volatile through out this year and things will only turnaround in FY15.
He says even though Q1 earnings were disappointing, recent government moves like the diesel and the gas price hikes will auger well for the economy in the long run.
Even though the market is sulking right now, according to Tiwari, there could be some sort of recovery because of these steps in the next nine-12 months.
He strongly believes that it is this outlook for FY15, which is helping the markets to hold grounds.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: What have you made of this up and down move on the index and what would be a good positional trading call for someone on the Nifty?
A: The volatility is primarily driven by two things. One is of course there is some sort of valuation pocket emerging so investors typically want to get into those. However, the problem is that if you look at the overall fundamental environment today, that continues to keep on deteriorating.
So, while you see spurts of optimism because of two things, fund flows and certain policy reforms on the other side you keep on getting negative news on the fundamentals. So, I think it is a clear indication of indecisive mood within the markets. We will have to most probably live with this kind of situation throughout this year.
Q: What’s your sense of whether or not the worst of the liquidity outflow is done for the Indian market? Just as an extension of that then, what kind of range or levels do you expect the market to hold through the course of this month?
A: Our fundamental view for BSE Sensex was 21,840 based on 14 times FY14 earnings. If one looks at the range of the valuations for the market as a whole, it has been between 12-13 times to 22 times if you look at 8-10 year kind of horizon.
So, we are somewhere in middle of that. The situation looks like that we should be prevailing to the current levels or maybe plus/minus 5 percent, till the end of this year. I think a lot of movement post December will depend on the political environment and what sort of outlook we see as far as government formation is concerned. So that will decide the markets beyond November-December.
Till that time I think because of the fact that most of the earnings disappointment with respect to what is happening in the corporate sector. On the positive side, there are few things which are very good for the economy in the sense that if you look at diesel price hikes or price hikes on the gas front etc is probably one of the most important reforms that government has initiated in last 8-10 years. So, there are few positives also.
Government is also trying to do certain things from the coal sector which is also indicative the effort that it is making. So, we are in a situation that there are few positive things but there is no real improvement seen on ground. I think current environment, people would be very disappointed. However, there is a hope that maybe 9-12 months down the line we could see some sort of recovery in the market because of the steps that are being taken.
In my sense this is the outlook for FY15 that the year will be better which is helping the markets to hold grounds. If that hope breaks down then I think the markets will head downwards.
Q: What do you do with a pocket like fast-moving consumer goods (FMCG) now? Valuations are still expensive. It looks like they are facing some pressure in terms of volume growth but the stocks are still pretty active.
A: There is apparent volume growth pressure across product categories. There is no doubt about that, but the growth is still there better than many other sectors. So, that’s the catch. We as a house have an elective view on FMCG so we have a neutral to negative view on most of the top tabs excluding ITC.
There is a likely moderation in growth rates, but if one looks at many other pockets of the industry, the growth rates are far worse. So, it is a matter of choice. The way we see reversal in trend, there will be a major shocker for lot of investors in FMCG.
However, till that comes investors will continue to believe in these stocks. That’s the point here. The valuations are high, the growth rates are moderating, but still they are showing some sort of growth rates. So, that is a divided view.
Our view is that it is best to avoid it. One should be looking outside the space excluding the places where there is a monopolistic situation like cigarettes where ITC is like a monopoly. So, those are the ones we will refer. Rest of them are definitely avoidable at this point in time or probably exiting because of high valuations.
Q: How are you going into Infosys earnings?
A: Broadly, it looks like that IT companies will show a very moderate growth quarter on quarter (Q-o-Q) in terms of revenues and profitability. Maybe a minor improvement Q-o-Q, but nothing major.
So, the broad spectrum of the IT companies don’t look like giving any major upside surprise.