See room to head up as long as liquidity stays: Purushottam

Sangeeta Purushottam, MD of Nine Rivers Capital believes the market is going up on liquidity gush and hope that the government will finally find the willpower to do take up some reforms. "It is that combination, which is working. And as long as that hope and the liquidity stays, I think we have some room to head upwards," she told CNBC-TV18 in an interview.

Right now, Purushottam says, it is performance that is getting rewarded. "There are many companies who are trading way above their long-term averages in terms of their multiples whether it is PE or price to book whereas the rest of the pack is trading way below. So in a sense the cyclical element is actually pricing in the worst," she said. Below is the edited transcript of Purushottam's interview on CNBC-TV18. Q: What is the sense you are getting? Is there headroom for the market generally because liquidity has favored us more than our peers quite clearly? Do you just wait for liquidity or do you think that now macro economic worries will start casting more pressure than they have done hitherto?
A: Liquidity certainly has been a big help and in many ways this situation is similar to what we saw at the beginning of the year, where we got this push of liquidity, which at the time, had flowed into many of the beaten down sectors.
The other thing, which has been helping the market somewhat has been the hope that there will be at least some policy measures, which will seek to either improve the investment climate or take some steps forward as far as some of the stalled reforms are concerned. So, it is that combination which is working and as long as that hope and the liquidity stays I think we have some room to head upwards.
Having said that, I don't think that the macro concerns are going to go away so quickly. So my own sense is that any rally that we see or if we see this continuing, the longevity of that will be as long as the liquidity and the hope continues. The macro worries are going to take time to get resolved. Q: Anything that stands out in terms of a performance where the market could still give credit? What impressed you most in the Nifty?
A: I’ll just talk about a pattern. I really saw this time that the market has become very sensitive to the earnings performance. So, we saw a very clear trend where companies, which delivered on earnings or better earnings, were rewarded and we saw sharp movements on prices upwards and the reverse happening. It is very clear that the earnings performance of sectors or stocks is really what is actually going to drive prices in the longer term. And if you actually do an analysis and just see what has really performed over the last year, broadly sector-wise, we have seen performance coming in from consumer, pharma, cement, from a few midcap IT counters, select private sector banks.
So, it is really quality or performance, which is getting rewarded and there is a very sharp divide in the market. There are many companies who are trading way above their long-term averages in terms of their multiples whether it is PE or price to book whereas the rest of the pack is trading way below. So in a sense the cyclical element is actually pricing in the worst.
Unfortunately, that revival of that cyclical element will happen only when we see a revival in the underlying performance. So for a while this trend will continue; may be we will see some bounce in the cyclical based on any announcements that we see in terms of policy or any hope on the investment climate, say something like inflation number coming down. These kinds of things will lead to movements there, but I think this pattern will probably just continue. Q: This market has given a lot of regard for the FMCG and the private banking space, kind of the safe haven space. Their valuations look pretty demanding. Is there any pocket where you see perhaps there is still some valuation catch-up that one can do, even if you have watched some midcap space?
A: I think some of the smaller stocks for example in the mid and the small cap space on the consumer side do have room to go up because they are trading at valuations, which are less than half of the larger companies. There has been some movement there but there is still some scope, so I think there are pockets there. Within the private banking space also there are certain stocks which have outperformed. So what we will see is the broad theme will probably remain the same. People would start looking at some of the smaller companies and they will play catch-up in this theme. So that is one theme which can play out.
The other which will ride on hope will be on stocks and sectors which are really beaten down. So because the valuations are so low you could still see may be a 20% move from there. So that would be your infrastructure pack if it starts moving. But my sense is that move may be short-lived if follow through doesn’t really happen.