Market upmove likely in 2017; like IT: Sanjay Dutt

With currency exchange nearing its December 31 deadline and the situation largely normalising, 2017 could see an upmove in the market, believes Sanjay Dutt, Director of Quantum Securities. The first half of 2017 could see the market scaling new heights, he said, adding that price correction has already happened. This, however, will also depend upon flows and currency movements.On the upcoming Budget, Dutt said it “could be a landmark Budget” with more radical changes coming in. Aggressive correction in stocks has factored in the third quarter earnings. Dutt is positive on the IT sector and said that price value equation is realistic now for the sector. Fundamentals are expected to strengthen from here. He is extremely selective on the automobile sector and recommends names like M&M and Maruti Suzuki.Below is the verbatim transcript of Sanjay Dutt's interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: What is your sense, would January itself be a better month as we start looking forward to the Budget?A: I have no two views about that. I am very clear in my mind that January onwards things are definitely going to be better. The much needed time and price correction is towards the last few days what we are experiencing now or probably it is over maybe. I think starting December 31, once the entire currency exchange process gets done with, we would see an uptick in the market. What we are seeing on ground right now already with companies, with retailers that things are starting to normalise a little over the last fortnight or so. That trend would be definitely reflected in the equity markets as well barring the global issues relating to the dollar, US markets and those equations if you don’t have any surprises there because some more dollar strengthening because that is a wild card at this point of time and emerging market/developed markets (EM/DM) flows if that part of it remains stable then I think definitely equities are headed much higher in January.Sonia: What about the two big triggers that we have as we head into the month of January earnings and Budget? Do you think that the concerns with respect to both these events has already been priced in to the market?A: On the Budget, I don’t think there are any concerns because in my opinion, it would be -- if I am short of using that word or I cannot find a better word -- probably we will have landmark budget because post this radical step that the Modi government took on November 8, there would be some more radical measures in terms of taxation, in terms of lot of other issues of how the economy deals with cash, how we do our transaction etc. I think a lot of those things may pan out in the run up to the Budget or in the Budget document itself.Second part -- earnings, I think stock prices are already reflecting those. The aggressive correction we saw from 8,600-8,500 levels around the first week of November to where we have reached at 7,800, in fact some stock prices are now 30-50 percent. That is already discounting the earnings bad quarter that we have seen in December and even some of the March quarter also. Until, unless we have some more negative surprises than what the market has already built into the earning models, I don’t think we have many negative surprises coming out of earnings.Latha: Let us play it sector by sector. IT -- we had a chat with Mohnish Pabrai (Managing Partner of Pabrai Investment Funds), someone who picked stocks for the longer time, he said Trump would be the best influence on IT companies vis-a-vis even other Presidents, he wasn’t at all negative on IT, is that a place you would seek some value?A: Yes I think so and I have maintained that thing in your discussions and even in other public forums over the last three months that this is the time you start accumulating Infosys, because I see very realistic price value equation at this point of time. One of the rare occasions over the last 10 years on a sustainable basis is that the price value equation at this has remained where it is. So it is probably a good time to selectively take technology stocks. I cannot say about what will be the impact of the new US establishment that Donald Trump and implications for that, I cannot claim that and no-one can claim that in a black and white fashion but I think technology companies have done their corrections and fundamentals would start to improve now.Sonia: What about some of the auto stocks like Maruti, Eicher Motors, Hero Motocorp? We are getting some anecdotal evidence from brokerage houses that December bookings have been quite good and have seen a double digit growth, is this a time to be picking up any of these stocks and if yes, which ones?A: That is what I mentioned a short while back -- on ground the feel that we are getting now over the last fortnight or so is that things are normalising. So obviously auto companies are included in that. There I would be extremely selective, I would probably pick up an M&M and a Maruti, I may not want to pick up an Eicher or Hero Motocorp. So definitely I think there are opportunities there also now and a by product of that is some selective auto ancillaries who would also be normalising their operations because of a lot of other developments that are going to come in terms of scrapping those 15 year vehicle etc. So they will benefit a lot. Selectively yes, I think auto sector can be looked at.Latha: You are happy hunting ground was always financials. You have in the past called it right on several occasions, what in this very large basket will you like?A: I have maintained over the last few months and I continue to do so, my top pick in this sector at this point of time is Reliance Capital. Real consolidate bouquet that is offered in one stock, it has corrected from a high of about Rs 580-590 -- Rs 420 now, I think compelling fundamentals, the group as a whole are now in the process of sorting out the issues that they have had, coming out of extreme debt exposure because of RCOM etc, that process is aggressively on internally but within the group, I think this company looks most undervalued and obviously within financials I think this is the best.But my favourite continues to be selective banking and more so now because the substantial amount of deposits that have come into the system all are not going to flow out post December 31, all are not going to get converted into small saving instruments or other instruments, quite a bit of it -- I would say 70-80 percent will remain in deposits of various forms where a fixed deposits, CASA or whatever that maybe -- therefore select PSU banking stocks would also be very attractive now to hold for the long-term.Sonia: What kind of texture do you see in the market over the next three-six months? Is it a market that will make an attempt to recover a lot of the lost ground that it saw in 2016 or do you get a sense that we could through the course of the next half year even hit new highs in the index?A: By hypothesis primarily based on the fact that the worst has been through the prices and there would be no more international negative events in terms of the financial markets, in terms of the currency equations as well as flows.If those two are pan out as I think they are going to pan out then I don’t doubt the fact that we probably may see new highs in the first six months of 2017 itself because prices for the last two years if you look back have made a phenomenally good base in most of the good stocks. We have had two years of underperformance vis-a-vis emerging markets and of course major underperformance versus developing markets even though we have had good GDP growth. You take it as 7 percent or you take it as 6 percent based on the controversial old or new figures whatever maybe the immediate. I think there is reasonably good growth, companies are managed to stay afloat even a lot of debt issues, they are all getting sorted out slowly, it is painful, yes. In that backdrop, I think we are now set for a very huge move up and that move primarily would be led by select set of stocks, which should take the Nifty to probably new highs.Latha: The widespread expectation is that affordable housing will get some kind of a boost probably our own reporter is speaking up that maybe a little more of tax rebates for interest on home loans etc, how do you play that theme? Housing finance companies, cement, what?A: I would play it through cement because quite a few cement stocks because of this demonetisation scare have corrected very aggressively. Something that comes to my mind and I own a little bit of it also, India Cement for instance, it was about Rs 157-158 sometimes in end October, end November now it is at Rs 110 and we will see a similar story across most of the good quality cement stocks. So, I would like to play it with cement and select steel versus pure straight real estate plays because they are still muddied waters because none of them have a consolidated affordable housing play as such where I can go and take a bet, this is an affordable housing play kind of a stock. However, I would want to play in a different manner and that probably might be through housing finance companies because ultimately 80-90 percent of people who buy houses today more or less use the EMI route because you get 10-15 years reasonably priced loan interest cost going down so I would play it with a combination of steel, cement and some housing finance companies.Disclosure: Network 18, which publishes moneycontrol.com, is a part of the Reliance Group.