FY09 Sensex EPS seen at Rs 975-1000: Kotak Sec

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SA Narayan , MD, Kotak Securities said the liquidity tightness will continue untill the Union Budget. Q3 results have been in line with expectations, but with a negative bias, he said.

FY09 EPS is seen in the range of Rs 975-1,000. He likes infrastructure, capital goods and he's neutral on tech and metals. Interest rates are tending towards a lowering bias, he said.

Excerpts from CNBC-TV18's exclusive interview with SA Narayan:

 

Q: Are you expecting that there is a pre-Budget rally on the cards?

 

A: I am not very positive that there will be a strong pre-Budget rally. Basically, the fact that liquidity was obviously driving the market seems to have dried out.

 

You have to understand the frame of mind of the investors, both local and institutional. After going through what they have gone through in the last two weeks, I do not think they will come back in a hurry, to invest all the capital which they get back. They will be more cautious about it. So, funds coming back will help. I do not think that will really pull the market up.

 

Q: If there are indeed any rallies from now to the Budget, would you be using them to sellout?

 

A: Let me categorise investors in two categories. For investors who were really playing in the F&O market, their positions have obviously come down substantially. But at the same time, there were a lot of private client investors, who saw the opportunity when the markets were down to keep investing.

 

They continue to keep investing in these markets in bits and pieces, because they take a reasonably medium-term to long-term view. So, again F&O investors and investors who had some positions stuck will obviously use the rally to slightly lighten their positions.

 

Q: How have you viewed what has happened with the earnings season gone by?

What is your own assessment on how much earnings can grow in FY09? Consequently, have you changed your FY09 EPS estimates on the basis of what you have seen in this quarter's earnings?

 

A: This quarter's earnings has been more or less inline and nothing has been surprising. If anything, in some cases it has been slightly below expectations. This is basically because of a high base effect. To that extent, if that had to give a boost to the market, it should have been really good. It was only inline.

 

As far as our estimates for this year is concerned, it would be in a range of 975 to 1,000. We think, on an overall basis, corporate India will achieve it.

 

Q: The market is about 15-20% off its 2008 highs. What are your bets that it will reach there before it touches a 15% downside? Do you expect that the chances of it going up are higher than the chances of it going down?

 

A: If you have to take a year-end view, by the end of the year, it will be somewhere in the region of 21,000 index levels. At the same time, I do not think the market will correct 15% from where we are today. For some time, I see it being rangebound in the range of about -1000 to +1000 points from here.

 

Q: In this EPS range that you have factored-in, what sectors would you bet on entering FY09? Which ones would you avoid on a valuation metric or on what you have seen in terms of earnings?

 

A: The interest rate is definitely showing a downward trend. India will also follow in the immediate future of reducing rates. We can see HDFC reducing rates by almost 25 basis points. In that trend, PSU banks will continue to be positive on those.

 

We will be neutral on technology and metals. To some extent, we may look at some of the specific infrastructure and capital goods stocks.