Sensex has strong bottom at 16000: Morgan Stanley MF

The Indian has been volatile over the last few days. In an interview to CNBC-TV18, Gandhi says, in the short-term, the market movement will continue to be determined by global cues. “Global liquidity will remain supportive for equities,” he asserts.

He feels the emerging scenario and the key variables is turning positive for Indian equities from a medium-term to long-term point of view.

According to him, the Indian Market continues to be driven by consumption growth. Gandhi remains cautious on PSUs, given the lack of policy certainty.

Power, he says, is a long-term play due to high gestation. He expects power companies to outperform, once rates ease.

Also read: Ambit Cap sees chance of 5-10% upmove, suggests buys

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.

Q: What is the prognosis for the market, after this up and down ride? Are you guys working with the range-bound scenario or do you think liquidity will push the markets higher, perhaps beyond 5,600?

A: Short-term movements in the market are difficult to predict. So, I would only stick my neck out for the medium-term to long-term. In the short-term, we will track probably the global environment or the global equity markets, which is what has been the principal source of the rally, since beginning of the year and that continues.

From my point of view, the emerging scenario and the key variables is turning positive for Indian equities from a medium-term to long-term point of view. That is very interesting. That, to my mind, will drive equity market performance with 12-18 months view.

Q: If you had to give us some sort of a target for the index by the time this year ends up, what are you working with at this point?

A: It is difficult for me to give you targets, especially on a yearly basis. But I would still fancy us making atleast double-digit returns even from current levels in the next 12-18 months kind of time horizon.

A couple of key changes, which are happening on the ground level, at the fundamental level for the Indian economy, are significantly better than what we saw in the last twelve months. If you look at the global environment, if you look at the changes in the import mix that we have, gold imports declining, also the fact that we would probably see interest rates cool off, all these factors to my mind will drive equity performance much better than what we have seen in the last twelve months.

Q: Also, likely that it provides a cushion for the market, do you think it is unlikely we breach the lows we have seen in this year?

A: 16,000-15,500 on the Sensex seems to be a pretty strong bottom. Atleast on the valuation front, we seem to be hitting a patch, which suggest that valuations are at ten-year low at those levels.

Corporate profits have been rising. My sense is that we will probably see corporate profit growth in line with normal GDP growth, 10-15% range in the next twelve months. That has not been the case in the last twelve months. That is predominantly the reason why we have seen valuations come off. But valuations can go down a tad lower, not more.