Nifty to continue trade in 5200-5700 range: IL&FS

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Nifty to continue trade in 5200-5700 range: IL&FS

Vibhav Kapoor of IL&FS, in an interview with CNBC-TV18's Sonia Shenoy and Mitali Mukherjee, said that break of the 5,200-5,700 range on the downside will be a negative signal for the market in the medium term.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » 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 ILandFS BSE | NSE 01/06/12 Are Mutual Funds betting on ILandFS?

On Monday, the Indian equities saw a sharp fall as the Europe's sovereign debt concerns re-surfaced. The session ended on a gloomier note which saw the Nifty at 5,383, lower by about 102 points, while the Sensex had a bad session closed at 17,993, down by about 332 points.

Vibhav Kapoor of IL&FS , in an interview with CNBC-TV18's Sonia Shenoy and Mitali Mukherjee, said that break of the 5,200-5,700 range on the downside will be a negative signal for the market in the medium term. He feels that with the oil prices coming 10% down from their peaks and commodity prices softening, the range would not break and the Nifty will continue to trade in the 5,200-5,700 range.

He further added, "Unless Europe were to go into a big tizzy and a huge slowdown which could have impacted some of the trade and particularly export, the European problems would not have much of an impact on India or the Indian markets. The FIIs would tend to sell off globally when such a thing happens."

Below is the verbatim transcript of the interview. Also watch the accompanying video.

Q: It was a difficult run yesterday for the market. Will the range break or are we still putting up a fight?

A: I hope not. The range is between 5200-5700 roughly. A break of that range on the downside will be a very negative signal for the market for the medium-term. A lot of things to some extent are improving.

Oil prices have come down by about 10% from their peaks. Commodity prices also seem to be softening a bit. There is really no reason for that range to break. It should continue to trade in the 5200-5700 range.

Q: There have been new problems emanating across Europe as well. The last couple of times, we brushed those problems away. Do you think this time we would do the same or would that be a hindrance to the kind of range that we have set out?

A: Fundamentally, the European problems would not have too much of an impact on India or the Indian markets. There could be some sentimental impact. Particularly, the FIIs would tend to just sell off globally when such a thing happens.

Unless Europe goes into a big tizzy and a huge slowdown which can impact some of the trade and export, the European problems shouldn't have any major impact on the Indian markets.

Q: What did you make of the way the market reacted to BHEL's number yesterday?

A: One issue is that the sentiment is pretty bad at the moment. BHEL in the provisional figures were much higher. Any company which comes out with little less than expected results, the market punishes those companies very severely. Apart from that, the results were not very negative at all.

Q: Where do you think the market will be able to resolve the entire inflation interest rates issue as that has been the lingering problem and got spilled over into the fact that growth may actually start faltering now?

A: The market obviously is factoring that in. In one sense, the market's fundamentals have actually caught up with valuations. If we look at it for the 15-18 months, the market has been in a range and has been testing that 5100-5200 levels going up and coming back again.

The market was expensive last year and that is why it was failing to go beyond a certain point. About 12 to 18 months passed in this range, earnings have grown although there is some fear that there may be a slowdown in the growth rate.

After taking that into account, this is the first time that the market is now pretty comfortably priced and the valuations are no longer expensive because many quarters have gone by. That's one positive factor which should provide a base at 5,200 levels for the market.

While there is a slowdown because of higher interest rates and the demand will start to suffer a little bit as we go forward, that's well factored into the market now. Even if the economy slows down from 8.5% to 7-7.5%, corporate earnings should grow at anywhere between 13-16% this year.

If one factors that in, then 5,200-5,400 is a pretty decent level where you don't feel that the market is expensive for the first time in last two years. You could actually be looking at buying some stocks for the medium-term.

Q: The undertone from the commentary that came out from the BHEL and L&T management is that the investment cycle is picking up. They are expecting to see a marginal order book growth in this coming year. Do you think the worst is over for some of these companies? The market has been yearning to hear for some amount of pick up in the infrastructure and capital goods space so long.

A: For the first time, we feel that the infrastructure sector is now looking attractive. A lot of stocks have lost their 50%-70% of their value and are trading at really attractive sort of multiples and valuations.

While the high interest rate regime is certainly having a little bit of problem for the infrastructure companies, most of that has been factored in. We are well advanced in the interest rates cycle with may be another 50 basis-points.

If the oil and commodity prices come down further 10% from here because of QE2 ending or a slowdown in China or US, it should be supportive for the interest rates not to go up beyond a point from here and this will be positive for the infrastructure companies.

What is needed is a little bit pushing from government if projects were to get awarded from here onwards which would be an added bonus. In the last one or one-and-a-half year, we have felt this the first time to start buying infrastructure stocks for the next 12-15 months perspective.

Q: Would you extend that buy signal into the banking space as well if you think the interest rate cycle has peaked? Many of the banking stocks are looking quite mouth watering at these levels.

A: Particularly, a few of the midcap sort of PSU banking stocks are looking mouth-watering. But, the banking sector might underperform for a little bit more time.

Its not that the interest rates cycle have peaked, there might be another 50 basis-points to go and then the interest rates could stay at higher levels for some time to come.

If you have an 18 months or 24 months perspective, some of these stocks are worth looking at and buying and putting in your portfolio for the medium-term.