Even as the market saw strong movements, IL&FS observed the current corrective phase may remain for a while. It expects the uptrend to resume from May as the sentiment is strong in the light of liquidity.
“Given the run-up in the past few months, a corrective move was expected when the results season began. We are in the midst of that now," Vibhav Kapoor of IL&FS told CNBC-TV18.
However, Kapoor cautions of headwinds during the second half of the year. He explained that the headwinds could be in terms of valuations as there was too much optimism.
On a fundamental level, the market ignored the appreciation in rupee which could deal a blow to certain sectors. "Exports, pharmaceuticals and IT could be hit by strong rupee," he told the channel.
He is now waiting for some correction to happen in the market as it is getting more and more difficult to get confident buys as valuations and sentiments are extremely positive.
Kapoor was wary of the IT sector due to major headwinds like the visa change process, change in business model and rupee appreciation. He does not seem it posting margins of over 26 percent for a long time.
Meanwhile, in case of pharma, new problems such as the generic drugs initiative in India could increase competition.
Among lenders, he chose to stay away from corporate banks, while he was positive on retail banks. The valuations were high for now, but they will also keep gaining market share, he added. These stocks could be a good buy on correction. The same strategy is applicable in case of NBFCs as some of them are at high valuations.
He also recommended investors to watch out for new problems of bad loans in the telecom sector. One needs to keep it at the back of the mind.
On metals, Kapoor expected a correction and believed they were good buys. Simultaneously, on GST bets, he likes FMCG, adding that it would also depend on the monsoon situation in the country.
Below is the verbatim transcript of the interview.
Anuj: Do you get a sense that this market should correct a bit now given the global uncertainty and given the fact that the first couple of earnings have not been good even not meeting the lower expectations? Do you get a sense that this market could correct or do you think liquidity is enough to sustain market even at current levels?
A: Given that the market has had such a big run up in the past few months, it was always expected that there would be some sort of a corrective move when the result season begins. I think we are in the midst of that now. So I do see some correction happening from here but I do not think the correction is going to be very strong and it will be probably pretty mild and maybe take the index down a couple of 100 points the Nifty and probably the uptrend should resume thereafter maybe somewhere in May given that the liquidity is so strong and the sentiment globally is still very good for equities and particularly for India.
Latha: Is liquidity becoming the only reason to buy stocks?
A: Yes, I think that is a good point and the positive prediction, which I am giving here is limited by the fact that I see the second half of the year is going to have a lot of headwinds for the stock markets to move up further. So I would think that maybe another 3-5 percent upside for the index till June, July and thereafter second half you are going to see a lot of headwinds.
Latha: What headwinds?
A: Particularly in terms of valuations. There is too much optimism, which at some point of time will obviously put a cap.
In terms of fundamentals, I think one issue which the market has been ignoring is the rupee appreciation. That can limit the upside of the index because there are a lot of sectors like export sector, pharmaceuticals and IT and lot of import substitutes like metals etc which can get impacted by rupee appreciation. So if there is a change in the stance, as we see from the Reserve Bank of India (RBI) and maybe even the government saying that they are not too worried about rupee appreciation and RBI has not been intervening for whatever reasons and if the rupee appreciates further to 62-63 per dollar, that would be a significant headwind for further appreciation in the index.For full interview, watch video...