Ambit has a target of 23,000 for the Sensex by December, and is betting on easing commodity prices to strengthen India’s macro-economic fundamentals. Saurabh Mukherjea is cautious on the banking sector and bullish on oil & gas and auto sectors.
Foreign money is moving out of China and into India, says Saurabh Mukherjea of Ambit Capital. In an interview with CNBC-TV18, he says that progress on the Goods and Services Tax will be the next key trigger for the market. Mukherjea is hopeful that the Reserve Bank of India will again cut repo rate by 25 basis points at its next policy review.
Ambit has a target of 23,000 for the Sensex by December, and is betting on easing commodity prices to strengthen India’s macro-economic fundamentals. He is cautious on the banking sector and bullish on oil & gas and auto sector.
Mid and small cap shares have taken a hammering over the last six months, but Mukherjea feels investors will start looking at this space again because of attractive valuations.
Q: We have had a pretty good run that got a bit punctured a bit on Friday How are you guys feeling about the market and whether there is more traction from here?
A: Our reading is that we are seeing some reallocation of flows away from China, away from the other commodity dependent emerging markets and towards India. There are always few broad macro criteria for reallocating money to India. The rate cutting cycle continues. Gross domestic product (GDP) growth should turn around starting Q4 and there is clear foreign direct investment (FDI) and foreign institutional investors (FII) interest. The mood certainly is in India’s favour at the time.
Q: What could the range of this market be on the upside more importantly because the run from 5,500 to 5,900 has been very smooth and very fast paced?
A: I believe another 10 percent up over the next three months cannot be ruled out. If there is a breakthrough in the May 10-11meeting between state finance ministers and goods and services tax (GST), then that will be a big step forward in terms of getting the GST atleast approved in the monsoon session of parliament.
We have Q4 GDP data coming out towards the end of this month, another set of rates in the middle of June- I expect another 25 basis points rate cut and then Q4 current account data towards the end of June. If commodity prices continue sliding, we could see India getting put back on a stable rather than a negative by the credit rating agencies.
Q: In order of importance what would you rate as the biggest reason for the market to rally from hereon? Is it the fund flow activity that you are alluding to or have you seen some kind of change either in terms of earnings performance or earnings improvement that you think will be the primary riding factor?
A: The main reason for the rally has been commodity prices cooling off. It has three positive benefits in our country. It cools down the pressure on the currency, it gives the Reserve Bank of India (RBI) more room to cut rates and it cools down the budget deficit because of the way our subsidy system works. So, commodities are coming off either because of the China story taking a back seat or because of the global commodity super cycle turning south. Commodities coming off is a big plus for India and let us hope that continues going forward.
Q: It is a bit of a ironic relationship with Reserve Bank every time there is caution in the note, but there is a rate cut too and that is generally what the market has come to accept. Would you be cautious about the financials given the takeaways from the Reserve Bank’s note on Friday or you think that is the best place to bet on?
A: I think financials is banks in particular, is a sector we have been very bearish on upon the last year. My reason for being circumspect about Indian banks is not just the rate cycle. I think that is part of the challenge but the biggest challenge is fee income and the pressure that will come on the banks is fee income from various RBI investigations and inquiries currently going on.
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