Nifty may surpass 6350, says Bowen Capital Management

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Nifty may surpass 6350, says Bowen Capital Management

Given the current momentum, Aadil Ebrahim, Investment Manager, Bowen Capital Management, says the Nifty may surpass its earlier peak of 6,350. “We are definitely in a boom market phase right now. A lot of the market momentum is being driven by foreign investors.”

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Mkts may continue to rally on robust inflows: Dalton Cap Mkts strong: What should be your investment strategy now? ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

Given the current momentum, Aadil Ebrahim investment manager at Bowen Capital Management, says the Nifty may surpass its earlier peak of 6,350. "We are definitely in a boom market phase right now. A lot of the market momentum is being driven by foreign investors."

However, he advices investors running portfolios based on benchmark to take profit. "I just think benchmarks are going to struggle for the next year or so."

Below is a verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Anuj Singhal. Also watch the accompanying video.

Q: It has been almost a one way journey since that 5,400-5,500 mark broke and now we are at 6,060, every correction is proving to be shallow. What is your sense, can we enter euphoric phase, which takes Nifty to all time highs and maybe even higher than that?

A: As you pointed out earlier, we are definitely in a boom market phase right now. A lot of the market momentum is being driven by foreign investors. There is muted growth in Europe and US. So, obviously the funds are going to chase higher earnings growth and different money is flowing to markets like India. So, foreigners are playing the great growth sort of arbitrage trade.

What is interesting is that domestic investors are not yet excited and that is a bit worrying. For us, to suddenly increase our positions in India and go overweight, we will want to see domestic investors increase their allocations. Obviously, there is some sort of nervousness, which is understandable after last year's bull market rally. Domestic investors are sitting in India looking at the growth, growth is not bad we are growing 8-9%, the economy is booming, inflation is worrying, but the foreign investors are chasing the growth. So, we saw the growth playing of each other. Right now, obviously the foreign investors are winning and the rupee is slowly trickling to probably that 43-44 mark.

Q: A person who has invested in India, an foreign institutional investor (FII), in perhaps late August or even mid-August is now getting a double advantage, it is not just perhaps the 10% rise in stocks since then, but also a decent amount maybe a 5% rise in the rupee as well. Do you think this will now turn into a virtual cycle with dollar earnings improving a little more of FII liquidity flowing in?

A: The concern obviously is what happened in October of 2007, when the government clamped down on foreign investments that is a concern. Right now, we are still away from that. If you can remember, at the end of 2007, the rupee was at 39-40, so foreigners are still down from a three year perspective, even though domestic investors are 4-5% away from their peaks. But we have to be careful about the currency and if foreign money starts to pile in that is my concern, I wonder what kind of speed breaks these guys would put on.

Q: To expect that there will be any breaks at this point in time on dollar flows is a bit farfetched because the current account gap as well as the trade deficit gap is huge and therefore so long as the dollar comes in that is lucky for the economy, so perhaps fresh hurdles to dollar flows will not be imposed at any rate is the hope. How long do you think this rally can go on, do you give it some surprising levels like the earlier peak of 6,350 getting taken?

A: It should surpass that the way the momentum is running. I am just shocked at the performance of the US and European markets, we are looking at muted growth and we don't see any significant improvement in data points. So, for those markets to have rallied this month, to be one of the Septembers of the last 15-20 years is shocking. Obviously our markets have benefited from that.

If those markets had not rallied, our markets still would have outperformed, but we wouldn't be up in dollar terms at 13%, we would have been up far less than that. So, obviously some of the global markets rallying what I thought would happen is that Indian markets would underperform, but it has outperformed as people are getting a bit more bullish globally and money is flowing into this part of the world. So, I think with global markets being muted, Indian outperforms and global markets doing well, India does outperform. So, we are sitting in best of both worlds right now.

Q: We have seen a big rally in FMCG stocks over the last few days, HUL has reached a new high and there has been some rally in ITC too. You used to have investments in Dabur which you sold off, but Dabur itself has corrected a bit, would you relook at that or any other stock in the FMCG basket?

A: Our view on Dabur , the share price has underperformed and that is great in terms of from where we are looking at. What we need is couple of more months of flat line share price or for the share price to fall a bit then from a price to earnings it starts to get attractive in terms of our valuation model.

Some of the other FMCG stocks have done well based on expectations of muted raw material price growth, from a better monsoon, better income levels in terms of distributed amongst farmers. But we are still not that excited on valuations, we want something lower than that. But we may not get it, hence we will have to look elsewhere.

Q: Would you be booking profit at all? You said that taking 6,350 doesn't look difficult at all at this juncture given this momentum of buying, would you therefore care to wait for 6,350 to book profit or is profit taking not on your radar just yet?

A: Profit taking in terms of the way we run our portfolio is not determined by where the index is, it is more on a stock specific basis. So, if individual stocks look overvalued, we will start taking profits.

Based on what we own right now, there are some stocks that are probably 10% away from their fair value, there are others that are 50% away. For example, LIC Housing , REC are still 40-50% away in terms of fair values. So, even if the market breaches 6,500, we won't be interested in taking profits at those levels.

Q: Would you advice profit taking? The nature of your fund maybe different, but would you say it would be superbly valued or richly valued that it would be good idea to take profit at that point?

A: I think investors that are running portfolios based on benchmark, we would definitely advice investors to take profit. However, I would have said the same thing couple of months ago. I would have been wrong. I just think benchmarks are going to struggle for the next year or so. With the yield curve inverting, it is going to be very tough for a lot of industries to source capital and you need to have retail franchise to raise capital. So, traditional banks will find it difficult, real estate companies and large infrastructure companies will find it difficult to get access to cheap financing; that is half the index is dead money.