Market may be witnessing selling from foreign institutional investors, but domestic institutional investors will continue to remain strong, says Hemant Kanawala, Head Of Equity at Kotak Mahindra Life Insurance. So he expects no downside to the markets.
Due to lack of any major triggers other than the Budget in the near-future, he does not see an upside to the market as well.
Nifty, he feels, may continue range bound around 8,000 level.
Although the GDP numbers may come out in late February, the impact will become apparent sooner as companies come out with their earnings, says Kanawala.
Below is the verbatim transcript of Hemant Kanawala's interview to Ekta Batra & Prashant Nair on CNBC-TV18.
Prashant: Where do you think earnings will not be as bad as what market has priced those stocks and sectors at? Which are those pockets according to you?
A: Post the move in demonetisation, the investors have been most worried about two segments, one is discretionary consumption and other is non banking financial companies (NBFCs).
So, whatever talks we have from companies and dealers, it looks like consumption has started recovering towards end of the quarter, so an impact was felt in the month of November and early part of December but things started normalising as cash availability improved in the system. So there is a possibility that selectively companies -- so it cannot be sector wide movement because companies and the management which have responded to the change effectively have done well towards the end of the quarter. So there might be some surprise possible in the sense that the fall may not be as bad as initially feared by the market and consumption stocks may do well.
On NBFCs also there is some improvement but still one needs to be careful because inherently financial sector is a highly leveraged sector, so any impact is always exaggerated, so that's where we want to be more careful, but consumption, it's possible that it can surprise us positively.
Ekta: In that context how closely are you watching the gross domestic product (GDP) numbers on February 20, when the revised estimates including how much ever data for demonetisation comes out. Will it matter to the markets or are you working with high frequency data points that you received since November more closely?
A: Before that we have a few important events. One, earnings for the last quarter will be out and that will give us some sense on how the economic activity has panned out; the management will be able to give clearer picture. So far many companies were yet not clear on what impact being felt but they will have more data points to share when they come out with their earnings. Second, Union Budget and third is credit policy, which will be announced in the first week of February.
So that will determine the future trend and by the time actual number of the last quarter GDP will be announced, it will have little significance for the market because earnings will be out and the impact will be known. So it will have little significance for the market by the time it is announced at the end of the period.
Prashant: Do you have strong view on what aggregate market levels we are likely to see in the very near future?
A: We have numbers of events as I mentioned earnings season followed by Budget and then credit policy. So market in the absence of positive trigger is likely to remain range bound. We do not see big downside mainly because of flows. So what has happened in the last quarter is that we had fair amount of selling from the foreign institutional investors (FIIs) but domestic institutional investors (DIIs) flows continue to remain strong.
However, in the last quarter the insurance sector was not that buoyant but in January to March, traditionally, insurance flows are strong, so we will continue to see good support from the DIIs and if FII flows reverses at the margin then flows will continue to support the market on the lower side. So we do not see downside beyond 8,000 for the time being.
An upside will be capped because of event but if the Budget surprises positively as well as earning season not as bad then market can break out of the range.