Nifty likely to touch 6600 in a year: Macquarie Cap

In an interview to CNBC-TV18 he said, "So overall I would say that we have a target of 6600 for Nifty from a 12 month perspective. We are playing investment theme and also interest rate cut cycle."

Arora feels that investment cycle has bottomed out and is starting to pick up with all the government action. "Interest rate cut cycle has already started in a way that banks have already cut interest rates and if the RBI obliges on October 30 I think even that theme will pick up," he elaborates.

Continuing the positive outlook, he adds that earnings upgrades are for likely for the Nifty companies from next quarter.

Arora advises investors to book some profits in cement stocks. He is also underweight on consumer staples due to valuations.

As an investment strategy, he is positive on Maruti and Tata Motors among autos and recommend holding on to Wockhardt despite rally. Meanwhile, he feels valuations of banks and consumer discretionary attractive. He also likes JSPL and Sterlite among metal companies.

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Below is the verbatim transcript of the interview

Q: What is your orientation now - buy every dip in the market? Do you think the trend has changed for the better?

A: Yes, we have become more bullish on the market from two sides. One, we think that the investment cycle has bottomed out and is starting to pick up with all the government action on the administrative side while the reforms will take more than three years to really result into any kind of earnings upgrade.

But the investment cycle will pick up driven largely by infrastructure spending and also by public sector companies who are being forced to invest more than what they were earlier planning.

Secondly, the interest rate cut cycle has already started; banks have already cut interest rates, and if the RBI obliges on October 30, even that theme will pick up. These two things will ensure that companies who have been reeling under margin pressure for quite some time should start seeing some relief. We are already seeing that global inflation has come off in a big way. Rupee did appreciate, which raised hope of all the imports, which goes into companies, should see lower costs. Overall, I would say that we have a target of 6600 for Nifty from a 12-month perspective playing the investment theme and the interest rate cut cycle.

Q: Do you think the market has been fretting about the fact that earnings are not showing any signs of acceleration, that may also start to happen justifying the rise in stock prices?

A: Yes, in this quarter’s results, we are expecting that at least the margin pressure, which was evident in the last 3-4 quarters should start to abate. Probably, you should see some margin uptick in this quarter coupled with slightly lower inflation. We think that margins should start to see a tick upwards.

The second big thing is interest cost. Most of the midcap companies were highly levered, and for some of the infrastructure companies, even a 100 bps interest rate cut is equal to 70-80 per cent jump in profits. These two things will ensure that we go back to the earnings upgrade cycle.

When I look at the consensus estimate, they are extremely conservative. For FY13, the estimate is 10 per cent growth, and for FY14, it is around 12 per cent. Nominal GDP growth is still closer to 13-14 per cent. I think there is an easy chance that earnings upgrades start to happen. Since January, the speed of downgrades has actually distilled quite a bit. In the next one quarter, I think we should be in the positive territory in terms of upgrades.