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Aug 31, 2012, 03.41 PM IST
Sanjeev Prasad of Kotak Institutional Equities sees high chances of correction if expectations built on local and global front are not fulfilled.
The first quarter GDP data for financial year 2013 will be announced today. According to a CNBC-TV18 poll, the number will be a mediocre 5.3% .
Like most experts, Sanjeev Prasad of Kotak Institutional Equities expects Q1FY13 GDP to be at 5.2%. But, he doesn't see the market giving much weightage to it unless it falls below 5% to 4.5-4%, which will be a shocker.
Meanwhile, the risk sentiment in the market globally was supported expectations of stimulus action by global central banks. On the domestic front, expectations of improvement in the economy were based on change in the finance minister, he explained.
However, if these expectations are not fulfilled then one should be ready to see a correction because market valuation is not very supportive, he cautioned.
"If you look at the market, BSE 30 on free float basis, you are looking at the market which is trading at 15 times now, so that is not very cheap. Most of the stocks which we want to own whether it is in consumer sector, pharmaceutical sector or private banks have become very expensive now."
Below is the edited transcript of Prasad's interview with CNBC-TV18.
Q: Your thoughts on the GDP number and what kind of impact it might have if any on the market?
A: We are looking at about 5.2% GDP growth for this quarter, pretty much inline with consensus of 5.3%. I am not very sure if backward looking numbers are that much of significance now because we know what is happening on industrial production and the IIP number for April to June period was flat.
I would be surprised if the industry numbers comes in more than 1%, agriculture more or less doesn’t surprise on the upside or downside that much. Most of the swing will come from the services sector.
So, we will have to wait and see what is happening here if there is a bigger than expected slowdown even in services sector. The quality of data itself is a big issue when it comes to some of the government related data.
I am not sure that this is going to have a big impact on the market unless and until you see a slippage below 5% to something like 4.5-4% kind of a number then people will get a bit more shock than what a 5% number anyway implies.
Q: What is your call on the market? You sounded a bit cautious for some time; do you think there could be downside given the kind of macro policy noise from New Delhi that one has heard for the last fortnight or so?
A: What has happened over the last two months is some sort of a risk-on trade as far as global risk appetite is concerned. It started from end of June when Euro Zone summit happened, and then Draghi came out and made some positive statements.
All that resulted in creation of a positive momentum as far as global risk is concerned. There are expectations of some sort of QE3 and ECB will do some bond buying program. So, all that supported risk sentiment globally.
Domestically, there has been lot of expectations based on change in the finance minister, the expectation of interest rate cut and so forth. So, again that supported sentiment to some extent. We have seen very strong inflows of more than USD 3 billion between July and August.
The problem is if some of the expectations both on the global side and domestic side get belied then this market is coming down because valuation is not very supportive.
If you look at the market, BSE 30 on free float basis, you are looking at the market which is trading at 15 times now, so that is not very cheap. Most of the stocks which we want to own whether it is in consumer sector, pharmaceutical sector or private banks have become very expensive now.
If there is no solution to some of the issues surrounding the sectors, I do not know how much more of Hindustan Unilever one will keep buying at 36 times 2013 price earnings. There is a fair degree of chance of market correcting if we do not see positive momentum on all the promises been made as far as resolution of Euro Zone problems and improvement in governance in the country are concerned.
Q: What do you make of coal block de allocation talk because there is some thought that after the Monday meeting you could see some de allocation of blocks? What impact might that have on market sentiment if that were to come through?
A: I do not see much of a direct impact because if the government de allocates some of the blocks where you haven’t seen any commercial production starting then I do not think it makes any difference. There will be some sentiment hit for some of the stocks but that’s about it.
The bigger issue is the kind of flip-flop you are seeing policies in most of the natural resource space. If you look at the mess in the telecom sector and now you are seeing problems in the coal sector and then there were GAAR issue and so on, a bigger issue over here is how quickly can the government can lay down the rules of the game.
First of all, you need to lay down pretty much in a transparent open policy in the first place and make sure you are following them. That is the bigger message here rather than cribbing about what is the loss to the exchequer.
On those numbers you can keep on debating, but the way in some of the natural resources have been given to the private sector in the past these are questionable. So, the bigger issue is how quickly you can fix these processes and go about handing about natural resources in more open and transparent manner.
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