IL&FS's Kapoor expects market rangebound between 5000-5400

Snapping a four-day rising streak, the BSE benchmark Sensex fell by over 40 points in early trade today as funds and retail investors booked profits at prevailing levels. According to Kapoor, the market outlook remains bullish but one needs to keep a close eye on the monsoon season and global cues.

“I would expect that over the next one month, the market should range anywhere between either 5,000 and 5,400 or 5,200 and 5,400 depending on how the monsoons have progressed,” he told CNBC-TV18 in an interview.

Below is an edited transcript of Kapoor’s interview on CNBC-TV18. Also watch the attached video.

Q: Where do you think the market is headed? What kind of targets should one rework the market direction with now?

A: A lot of things have happened in the past few weeks. The fall in oil prices and the hopes of policy action from the government has helped a big deal in pushing the markets up, and then the positive outcome from the European summit meeting. So there has been some substance to the rise but a significant part of the rise is also based on hopes that the government will not start taking policy action and new reforms. This will improve the economy as well as the corporate sector’s profitability.

While the overall tone is bullish at this point of time, we need to watch out for a couple of things going forward. One, of course, is how much of these hopes realize and get converted into action and how oil prices behave going forward given that the global sentiment is improved a little bit. Finally, the most important is the monsoon. This year, it will play an even more important role that they normally do given the fact that the economy has already slowed down and a sub-normal or a below normal monsoon would accelerate this downtrend in the economy.

Q: This market has rallied on the back of hope and sentiment. How much more of an upside could this market eke out?

A: As I said, there are two immediate things to look out for over the next one to one and a half months. One is the progress of the monsoon; so far, they have been subnormal and that is something which we need to monitor almost on a day-to-day basis to see how they progress from here.

The second is the quarterly results, which will start flowing in a couple of week’s time. My sense is that the quarterly results are going to disappoint. One because the economy has slowed down further in the months of May and June particularly the rural sector. There are some signs of a slowdown happening for the first time.

Secondly, there are a lot of foreign exchange losses. The rupee depreciated by about 9%, a lot of these losses can be booked in the balance sheet directly but some of them will come into the P&L. So you will see some disappointment on the quarterly results. If the monsoon soon picks up then a cap of about 5,350-5,400 on the Nifty for the time being obviously subject to what happens to the monsoons.

Q: How high would you rate the chances that the market actually goes on to pierce that 5,600 level? Conversely, do you agree with the opinion that what the market saw over the course of the last month was a troughing process and we have a stronger downside in place for us?

A: I think 5,600 is still too far away to speak about. There are some headwinds going forward not least of them being the rains and the corporate results. I think market has to navigate through that corporate result season which I would like to repeat. I think we will be below expectations, we don’t expect the growth of more than 4-5% in profits for this quarter given the forex losses and the slowdown.

If the monsoons don’t progress well then you have a further danger of a slowdown in the rural sector because rural India will stop reduce their expenditure. Also the Reserve Bank of India (RBI) governor has very clearly said that the monsoons are going to be critical component of the decision whether rates can be cut immediately or not.

In addition to that, oil prices are not going to fall much further now. They probably will range between USD 90 per barrel and USD 105-107 per barrel. So there is not much upside to look from that angle.

So 5,600 is far off, I think the market will find it difficult to cross even 5,400 for the time being. Probably by the middle of July when the result season starts and the monsoon picture starts to become clearer, you could see a reaction or a sort of correction to this uptrend starting to emerge. I would expect that over the next one month, the market should range anywhere between either 5,000 and 5,400 or 5,200 and 5,400 depending on how the monsoons have progressed.