Mkt up till policy acts; media, NBFC hot: ICICI Pru Life

Lakshmikant Reddy of ICICI Prudential Life Insurance explains on CNBC-TV18 that the market will remain buoyant till the government policy takes effect on the ground. He advises investors to bet on the NBFC and media sectors on the expectation of the issue of new banking licences and boost in advertising revenues.

Offering a technical view, Sudarshan Sukhani of s2analytics.com adds that he is confused on the supposed follow-up estimated on Tuesday. "We certainly have a follow up and the Nifty is up 20 points, but the effect has been dimmed in the background of a lot of inter-market bullishness. This indicates a stronger market and investors are advised to go long. I expect the Nifty to go higher than 5,920 which might happen tomorrow."

Below is an edited transcript of Lakshmikant Reddy's analysis on CNBC-TV18

Q: What's your the call on the market because after the big run-up, the market seems to have gone a bit sideways?

A: Yes, over the last three-to-four months, the market has been very buoyant both on account of the significant policy initiatives in the US and Europe as well as a spate of positive policy announcements in India. I think that has clearly provided some sort of a relief to the negative sentiment ensuing from August-September.

However, it will take some time for all these announcements to effect an improvement in the economic outlook and push growth higher. But in the interim, I think this optimism will ensure that the market remains buoyant. It seems a bit far-fetched that after the sharp move in the last two-to-three months, in the short-term at least, the market will really break out of the 5-percent band. The reason could be attributed to the likelihood of a significant supply of primary issues by the private sector and the government.

Q: What do you think would be the next trigger for the markets? How exactly do you read the entire fiscal cliff situation in the US and what sort of effect would it have on the Indian market?

A: Over the last two-to-three years, the crises in Europe and the US have not been able to dislodge emerging markets which on a return of normalcy witnessed increased capital flows and investor- interest to new highs.

Though it is difficult to estimate the manner by which the US fiscal cliff will be resolved, I hold the view that the underlying trend in the Indian equity market will be determined by local economic outcomes that will result from increased expectation after two years of economic slowdown of some sort of a turnaround next year.

So apart from causing a little bit of short-term volatility, the resolution of the US fiscal cliff is not expected to have any material impact in the medium and longer term.

Q: What is your outlook on the entire auto sector which has been performing very well of late?

A: Yes, we do own significant investments in the auto sector space. I estimate it will be one of the early cyclicals that would improve on economic revival. But we do not have a blanket bullish overview on the sector as some of the segments of the auto market are very structural in nature such as commercial vehicles and passenger cars.

But some of the other segments are more mature and perhaps investors have to be a little careful because on the revival in economic growth, it is entirely possible that all the segments of the auto sector may not respond simultaneously.

Q: What are you factoring-in from the Reserve Bank of India (RBI) now? After Tuesday's policy, do you think that the markets have pretty much factored-in a cut in the repo in January 2013?

A: Yes, I think so. The RBI's decision to leave rates unchanged on Tuesday was pretty much in line with the consensus expectation and corroborated by the market. I think all the data suggests that that a reversal in rate cycle is in the wings. I estimate a cut in rates in January.

Q: Which stocks would be impacted by the Banking Amendment Bill which received Parliament’s approval on Tuesday?

A: It would not be fair on my part to comment on individual stocks, But my guess is that certain non-banking financial companies (NBFCs) which have expressed aspiration for a banking licence and are the stocks I think would stand to benefit.

The next in line to possibly benefit are certain banks that did not scale up as much as they would have liked to or even initiate M&A activity. What needs to be evaluated  is the impact on the existing banks because any increase in new bank licences will also mean enhanced competition.

Q: Different sectors have come into the lime-light in the broader markets such as NBFC and media. Do you think that that’s going to be a theme that you would possibly recommend to clients in 2013?

A: Though I will not recommend individual stocks, investors should follow the time-tested approach of holding a diversified basket rather than hold a specific stock because it matters how a particular stock fits into a portfolio. All I can say is that media and NBFC have companies with a bright future.

Q: Realty has had a very good run in the past few months. Do you think the upmove or the exuberance is overrated?

A: The realty sector has been tricky because in the last three years there have been many occasions when realty stocks have moved up by 50 percent. But none of the surges could be sustained because ultimately, most of the realty companies are plagued by one problem or the other, barring one or two companies that are exceptions to the rule.  It is a very tricky sector - one we have not really invested in any meaningful manner over the last five years.