Don't wait for triggers, stay invested, says RBS Asia Sec

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Don't wait for triggers, stay invested, says RBS Asia Sec

Parul Saini, executive director at RBS Asia Securities advises to stay invested as he expects significant upside for the full year.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets HCL Tech BSE | NSE 31/05/12 Are Mutual Funds betting on HCL Tech? Other Stocks in this news Infosys | Tata Consultancy Services | Wipro | HDFC Bank | Power Finance Corporation | ICICI Bank | Canara Bank | Larsen and Toubro | Bharat Heavy Electricals |

Parul Saini, executive director at RBS Asia Securities feels inflation will undershoot the Reserve Bank's forecast of 7% by March.

Food inflation, a key driver of broader price pressure, has fallen dramatically in recent weeks even as manufacturing and fuel price inflation remain elevated. However, the recent tumble in the rupee has complicated the RBI's inflation-fighting by making imports of fuel and other items more expensive.

Saini expects a cash reserve ratio cut on January 24 when the RBI will meet to discuss its credit policy. "Overall, I expect 150 bps in rate cuts this year," he adds.

According to Saini, the biggest consensus view seems to be that the market will give us buying opportunity post elections. But, he says, if everybody is positioned from that perspective, it will be quite unlikely that one will get that buying opportunity.

"If you look at valuations too, they seem to be pretty reasonable right now, around 12 times forward earnings versus 17 times, which we had in 2011. Even the longer-term average is around 14 times. So, if we have a rate cut cycle, growth recovering, earnings hanging in there, estimates not getting cut significantly, I think you could get some multiple expansions too. For the full year, you can get 25% returns from here...closer to 19-20%."

Saini advises to stay invested as he expects significant upside for the full year.

Also read: Uptrend still intact, Nifty may cross 5000, say experts

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.

Q: What are your expectations from technology? How you are stacking up the big four right now?

A; In terms of technology, we are slightly overweight in our model portfolio. Within that, HCL Tech is our preferred pick. HCL Tech numbers seem to be in line with what we were expecting.

Also read: HCL Tech Q2 cons net up 15.4% at Rs 573 cr

Forward looking guidance will be the key. We like HCL Tech because there is significant valuation discount that has again opened up versus the largecap peers - Infosys , TCS or Wipro -even now. So, in terms of pecking order, tech is slight overweight on our portfolio and HCL Tech continues to be a preferred stock there.

Q: What about the market? It has moved up quite a bit over the last few days, particularly at an individual stock level. Do you see this rally continuing or do you see it pausing before the budget?

A: In terms of shorter term direction for the market, the policy statement on January 24 would be the key and also how the results pan out. So, if bank results don't show significant deterioration in asset quality and the RBI signals that they are seriously looking to cut rates not from this policy statement, but from the next, then the market could continue to grind higher.

I think the biggest consensus view seems to be that we can afford to wait till after the elections. The market will give us buying opportunity post that. So, if everybody is positioned from that perspective, it will be quite unlikely that you will get that buying opportunity. Our advice to client is building up exposures now and we do think this rally could continue, even if bank results are okay, with no significant deterioration in asset quality.

On the markets overall, we are quite bullish on markets for this year. It is quite different from the beginning of 2011, when we were quite cautious on the markets. The thinking there is inflation is coming off, although in the latest print it was more linked to food inflation, core inflation was a bit stickier than what we had expected. But even taking that into account, inflation will undershoot RBI's forecast of 7% by March. Thus open up the door for significant policy rate cuts, upto 100 to 150 basis points of rate cuts in calendar 2012.  Even growth seems to be troughing out. It is not recovering quite strongly, but it is troughing out. So, with the rate cuts coming in, I think growth should start to recover.

Finally, in terms of earnings, unlike 2011, when we saw significant downside risk to earnings at the beginning of the year, this time around I am not seeing that much downside risk to consensus earnings expectations. The actual earnings could come in for the Nifty or MCI India around 16% EPS growth for FY13. That could be a positive surprise to markets. And part of it is essentially marking to market the rupee for some of the exporters, even though core revenues and earnings might be a bit lower than what people are forecasting.

If you look at valuations too, they seem to be pretty reasonable, right now around 12 times forward earnings versus 17 times which we had in 2011. Even the longer term average is around 14 times. So, if we have a rate cut cycle, growth recovering, earnings hanging in there, estimates not getting cut significantly, I think you could get some multiple expansions too. For the full year, you can get 25% returns from here closer to 19-20%.