The worst is getting over, believes Vibhav Kapoor of IL&FS who expects Nifty to touch 9000 levels in the third quarter of current calendar year.
He said a 17-18 percent increase in Nifty can be seen in the third quarter as banks and metal stocks will perform better.
He believes that banks and consumption will have to take the lead as investment will take sometime to pick up.
He is also bullish on metal space after Donald Trump's election and US market moving up. He says if US economy starts to grow at a better rate then it is not too late to invest in metals stocks.
State elections are round the corner and Kapoor says that the polls are the most important cue in 2017 for the markets. As for the emerging markets, he says US will play a very important role.
When asked what he would do if he were the Finance Minister, Kapoor said that after demonetisation the market and public sentiment went for a toss. To bolster that it is important to offer industry and consumer sops.
He is also positive on the infrastructure front and says the sector will see some policy initiatives and is set to gain.
However, he is negative on the IT sector.
Below is the verbatim transcript of Vibhav Kapoor's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Anuj: You called for a correction in the last quarter of 2016, that more or less played out. Do you get a sense that the market will now move on from here?
A: I think the worst is getting over now. Last time I spoke, I was fearing this may turn out to be a mini bear market but I don’t think that is happening.
The market behaviour over the past few weeks has been pretty encouraging. This demonetisation issue is behind us as far as the market is concerned. The adverse impacts are over.
So a lot is going to depend on the elections going forward but they are still two months away. So I think the markets will make a gradual upward movement from here and then after the elections, you will see what trend it takes.
Latha: Let me come to the IndusInd Bank numbers. What are your key takeaways from those numbers for any set of stocks that you want to talk about?
A: Key takeaway for banking stocks particular is that things are not as bad as one thought. That is pretty clear.
Latha: Can we extrapolate that for that sector?
A: I think largely. Maybe the public sector undertaking (PSU) banks might have a slightly different take but definitely for the private sector banks you can take that away and to some extent even for the public sector banks. So the issue is whether bad loans have increased because of demonetisation. The rest of it is quite obvious as far as business is concerned, it is pretty okay. There is nothing wrong.
The market is going to find this true for a lot of sectors. Our analysis shows that a lot because of the base effect of last year -- last year Q3 was very bad, you could get something like 17-18 percent increase in profits in Nifty this quarter. I don’t think the market is expecting that.
Sonia: I wanted to talk to you about this sector of the moment which is metals. I know you have not been a big fan of this space but now we are getting newsflow coming in that some provinces in China have gone ahead and cut their steel capacity quite a bit. So this would have caused a positive for a lot of the ex-China companies. So we are seeing all these names like Tata Steel surge. Tactically is this a space that you would be bullish on?
A: We have been bullish on this space for some time now particularly after the Trump selection and the US markets moving up. So China -- yes things seem to be improving there for the time being but China is always a black box -- you don’t know.
In addition to that, if the US economy starts to grow at a better rate as is anticipated by the markets now and with the fact that we have gone through a long bear market in metals, in commodities -- therefore capacities have started being cut down. We are reasonably bullish in this space.
Sonia: It is not too late to enter into names like Hindalco, Tata Steel etc?
A: I would say some of them yes, definitely it is not too late.
Latha: How would you play this news itself? We have got some detail notes about China cutting its capacity by almost 100 million tonne. So is that the only way to play the metals stocks or is there some other way to play this?
A: If you are a commodity player, you can buy the commodities.
Anuj: From hereon, what sector do you think will take leadership? We keep talking about banks -- banks and consumption did well, they were the main sectors for the last bull market, do you get a sense that they will again have to do the heavy-lifting?
A: Yes, they will have to. I think banks are a very large part of the index particularly if you talk of the index, they are some 30-32 percent and consumption also has to take the lead. I think investment will pick up but there is still some time. So may be some of the infrastructure companies -- because interest rates have come down a lot compared to last cycle. So that is a positive thing as far as infrastructure and capital goods are concerned.
That sector should do reasonably well but having said that, the heavy lifting is still to be done by the financials and by the consumption.
Latha: Ultimately the markets will want to see earnings? What has been shaved off for this year and what can we expect next year?
A: We expect something like 17-18 percent earnings growth this quarter, Q3, which is ending -- this is for the Nifty as a whole. Largely, it is because of two things, one there were banks, which had -3,000 (minus 3,000) crore and -1,500 (minus 1,500) crore last year in the same quarter, so you will see much better picture there.
Then you had metals -- for example Tata Steel type of a company, which had a loss of Rs 1,200-1,500 crore. So if you look at the aggregate, the quarterly profits of Nifty are roughly in the region of 70,000-72,000 crore. Last year in the same quarter, they were only 62,000 crore. So you are going to see surprise figure as far as Nifty is concerned.
Next quarter it will again even out, maybe we will get 2-3 percent growth. So for the whole year, we expect about 6-7 percent growth in Nifty profits in spite of the demonetisation etc. Next year, I think it is too early to say but one would hope for that 15-20 percent type of figure.
Sonia: What would that translate to in terms of market performance itself, what do you think the upside for market could be over the next six months or so?
A: If you look at about 15-18 percent growth next year then by March of 2018, you could have earnings of about 500 odd, which means that you could go to upwards of 9,000 by six months from now. But there are two caveats -- one is the elections. I think that is going to be the most important event of 2017, state elections and UP particularly.
The second is the US -- I think US is going to play a very important role as far as emerging markets are concerned. So what happens to the dollar, what happens to US bond yields, what Trump does because he is very unpredictable. So we don’t know if he starts a trade war with China -- it could hurt all emerging markets.
That is something to watch out for and can derail things in emerging markets.
Latha: One theme you started off that interest rates have fallen so steeply, what would you buy because of that? Is it a generally all leveraged companies doing well or will there be specific consumption stories or something like that?
A: There will be some infrastructure stories because infrastructure stands to gain a lot when interest rates come down and one of the problems -- there have been other problems as we know -- has been high interest rates. So they will stand to gain a lot and then some of the leverage companies maybe and the financials and other companies or sectors, which are cyclical and stand to gain with lower interest rates.
Anuj: Any contra point in Infosys or TCS currently?
A: That is one sector we have been very negative on it for last one to one and a half years. We continue to be negative. You will get your technical bounce backs and if the results are a little bit better than expected, it will get some 5 percent rise.
Latha: If you were FM, what would you do in the Budget?
A: You have to give some sops to the industry, to consumers and improve the sentiment. I don’t think Budgets change trends for long period of time but given what has happened with demonetisation in terms of sentiment, it is necessary to bolster that sentiment. That should be good enough.