Bullish on mkt, expect economy to start improving: Kotak

In an interview to CNBC-TV18, Hemant Kanawala of Kotak Mahindra Insurance gives his expectations from the market. "We remain positive on the market because we see the macro data improving from here onwards," he says.

Also read: India FY13 current account deficit seen at 4.2%: Nomura

He however adds that investors need to be careful. He says, "The investor needs to focus on earnings, because we are not in a bull market. We might be in a very early part of the bull market, even if that may be. One needs to keep a close eye on the earnings and how the earnings trajectory is likely to move going forward."

Below is the edited transcript of Kanawala's interview to CNBC-TV18.

Q: How are you reading the run up in the market that we have seen up till now? What sort of levels do you expect for the Nifty? Would you still be as bullish with the possibility of Nifty touching 6,000?
 
A: We remain positive on the market because we see the macro data improving from here onwards. We have not necessarily bottomed out, but in terms of both, economic data as well as on a monetary policy, we see improvement signs over the next one or two quarters, which may lead to earnings upgrade cycle starting again.

What has been happening for the last almost four to six quarters is that we had an earnings downgrade cycle in the market. That made the market somewhat rangebound, from a longer point of view. However, if the earnings upgrade cycle resumes one or two quarters down the line, then market can give healthy returns going forward. At this level also, we continue to remain positive on the market.

Q: How would you play the market now? If you are bullish on the markets, which sectors or stocks would you be advising to your clients at current levels?

A: We expect the economy to start improving. It will make sense to play cyclical selectively. However, rather than segregating the market on a sector wise basis, we need to see which sectors and which companies within that are going to see a meaningful earnings upgrade going forward.

Even though some stocks may continue to look expensive at current prices, but if they show healthy earnings growth, one may get decent return from them also. We are not saying that one should not be playing defensives at all, because environment is still uncertain. There is an expectation that subject to the government doing something and RBI also supporting the government, the economy may bottom out and we may see better growth going ahead. However, those are all the events we need to watch on a continuous basis. In the mean time, one will want to play the market in a balanced way.

What we need to be clear is that, if certain events happen, one might or might not see a meaningful earnings upgrade. The question is, if the RBI cuts rates, will the interest rate sensitive sectors, like banks and autos benefit out of it?

If one moves to infra sector, there is lot of regulatory action which is required. Today we are not sure whether the government can take all of them. One needs to be very selective there. The investor needs to focus on earnings, because we are not in a bull market. We might be in a very early part of the bull market, even if that may be. One needs to keep a close eye on the earnings and how the earnings trajectory is likely to move going forward.

The investor needs to focus on earnings, because we are not in a bull market. We might be in a very early part of the bull market, even if that may be. One needs to keep a close eye on the earnings and how the earnings trajectory is likely to move going forward.

Q: It seems like we have pretty much de-linked ourselves in terms of a possible reaction which we have seen coming in from Europe, Asia and US markets. How would you peg it as in terms of a performance going forward considering we do have that big trigger of the fiscal cliff?

A: Overall our relation to the globe comes from our current account deficit. India has a large current account deficit which gets funded from both Foreign Institutional Investors (FII) mainly and also in foreign direct investments (FDI) flows. Whenever there is any concern globally, which is an issue towards emerging markets and portfolio flows, India’s growth comes under question mark and we see sell-off happening in India.

Today, fiscal cliff is one event which is being discussed more prominently, but there is also a funding issue happening at Greece. There is a rollover of debt which is to happen in mid-December and there is some concern around that. That is also putting pressure on the rupee as well on our linkages to the globe.

Whenever, there is a risk on, India will benefit out of it, but whenever there is a risk off, India will get also get affected because our growth gets impacted by lack of funding. So, 2011 was typically one year where there were concerns in Europe and because portfolio flows were slow, our growth also slowed down to some extent. Due to that the markets sold off. This year has been relatively better for European countries and that is why India has benefited out of it. Our linkage to the globe comes more from our current account deficit and till it remains high, we will be continuing to link with the global markets.