Oil & gas, power to lead Nifty; see 6300 by yr-end: Quantum

Bullish Sanjay Dutt, director, Quantum Securities said that the time and price correction for the Indian indices is over as most negatives have been already factored in. The Nifty is likley to touch 6,300 by this year-end led by key sectors like oil and gas and power, which have seen some policy actions recently.

"Issues in oil and gas and power sector will get sorted out in the next year or two and there would be growth. The leadership is definitely set to change in the Nifty. Some IT and banking stocks may contribute to this 500 odd point gain from the current levels," he told CNBC-TV18 in an interview. Also Read: Nifty to cross 5900 soon; see no trade today: Sukhani
5700-5750 will act as key support levels for the Nifty, he added.
Dutt expects the Reserve Bank of India (RBI) to cut rates aggressively beyond November-December.  
From a sector specific view, he does not advice investors to invest in real estate as he believes the sector is still plagued with huge inventory, debt, execution issues and consumer off take. However, he is bullish on the financial services sector and sees higher prices going ahead. Below is the verbatim transcript of Sanjay Dutt's interview on CNBC-TV18 Q: How are you feeling about the market now? Do you think it is still stuck in a rut or do you have a reason to be optimistic?
A: I have never been so bullish in the last four-five years as I have been now. We have seen the reality of the market across the spectrum whether it is country level when it comes to the macros and the currency, whether that comes to promoter and individual balance sheet level.
The good part is that all the bad stuff in the system is out. We all are much wiser. Even market participants have been shaken up totally and have contemplated many times in the last few months to get out of this business. It is not the right place to be and figure out what to do in life. So, both time and price corrections have taken place.
I am very optimistic now, because good stocks, whatever is left the Mecca's of corporate governance in Bangalore and Delhi have all shaken up. Therefore, there is nothing left that you can throw at all of us in the market. This only points to better times ahead from the current levels. Q: How long will that process take for the market? Are we still in the throws of a range bound trading and some kind of weak data, weak performance or do you think you would buy into the market now expecting that turn to come soon?
A: Everything that you have mentioned just now is like looking in the rear view mirror because bad data and bad news is all evident. I don’t want to look at it because it’s not relevant to the future that lies ahead in terms of companies, stocks and the economy.
We will muddle along 100-200 points here and there for a month or two, but in the next two to five years, we will have phenomenal gains in the companies that are leftover barring the ones who got bloated debt, who got currency problems, those will still have lot of pain to sort out and solve problems in terms of assets stripping, restructuring.
_PAGEBREAK_ Q: A lot of companies are waiting for the next election result to get out of the way before they take any meaningful decisions. Do you think that could be a fly in the ointment next year if that does not turn out as per expectations?
A: Not relevant. We have played out this election bogey several times over the last 20 years. If you get National Democratic Alliance (NDA) in power, you will still have stuff going on. In the last five years, we have seen a mix of political inaction, bureaucratic inaction and policy inaction in India. But it has more to do with the overall emerging market (EM) trend, overall problems.
If you look at Brazil, Argentina, Mexico, so many markets worldwide, particularly in the EM space and in the lesser developed markets or markets which have concentrated sectors, China also for instance. We had lot of pain and therefore, it is not just to do with India per se. Our problems have been magnified because of political and policy inaction in lot of areas. But most of it is now getting out of the way.
We are playing this Fed tightening and the tapering a bit too much and that card has also played out now and most currencies, economies and flows would be adjusting or have already adjusted more or less.

Q: How are you constructing your portfolio now to play for the next upswing?
A: Looking at some good quality midcap companies that do not have debt, reasonably good management scanning through balance sheets, scanning through details particularly in terms of corporate governance. This is because an important aspect that has come out of the last two years is related to corporate governance and what disclosures and key management practices and the management's ability to handle when the tide ebbs. That has been put to test phenomenally in the last two-three years.
All the managements who have been able to handle this a bit more maturely and much better compared to the rest, they are the ones where you got to be because business risk, company risk, sector risk is inherent part of investing in business. But, it is important to know the right people in the market who can handle your bet in tough times. So that’s a key factor, a qualitative factor that we are looking at.
From a sectoral point of view, market will do well in the largecap space and the ones that can take the Nifty up would be things like oil and gas which looks obvious because the sector has been subdued, policy actions happening in there, power - that sector will be sorted out in the next year or two because both these sectors, we are both, an energy and power hungry country and there would be growth, there would be crude cash flows in most of these companies with policies being sorted out.
Similarly, some of the key tech companies that managed to weather the storm and since the US is starting to look up, these companies will benefit. So overall, there is lot to pick up out there. You just need to do extra homework now and both look at the qualitative factors as well as the pure fundamentals there. You don’t want to be in value which turns into deep value as you keep sitting on it. Q: Is Infosys part of that tech list?
A: I will not comment on anything, but just the fact that it is very unfortunate as to the events that have taken place there. But I am glad that persons like Narayana Murthy who we all hold phenomenal respect has come back to set the house in order. Unfortunately, they let it go down to that level, but they have realised that they need to set it right and are taking action which impresses me, but what happened is sad and should not have come to this stage. Q: Would you be able to translate your optimism about the situation right now into what you expect to see from the market in terms of whether you think a higher range is possible or the market can take out the highs it got to at a point in this year?
A: Yes, definitely. About 3-4 months back, I mentioned a 5500-5600-5900 range we all cringed. I think that range is going to move up now. I would say 5700-5750 or 5700 plus-minus support will be a phenomenal support and will hold now and on the upside towards the end of the year, I will not be surprised if 6300 plus is reached led by oil and gas, power and some of the other stocks.
The leadership is definitely set to change in the Nifty. You may not be able to really define too much of a sectoral trend change in terms of what will change in the Nifty barring oil and gas, power and some of the key other stocks, but you have select stocks. Some technology stocks, some banking stocks, all contributing to this 500 odd point gain that I am talking about from the current levels.

Q: What are your expectations from the interest rate during the second half of this year?
A: It is a difficult equation because it is about next month and also for the next quarter and has the dollar-rupee equation built into it. It has oil. Brent is not cooling off and both the Brent and the West Texas Intermediate (WTI) gap is just USD 3 versus a USD 20 odd gap that we saw a few months back which constantly maintains USD 15-20. Such things confuse my outlook in terms of the interest rates.
The policymakers including RBI will have to focus on growth. Inflation is a challenge because of the factors that I mentioned. So, it is difficult to game the next two-three months as to whether you would have a very dovish or you will have good interest rate cuts coming in.
I can easily see beyond November-December aggressive rate cuts. Cost of capital will really drop for India. Those would be better times that I am confident about, but I cannot say about what is in store for next month or 2-3 months. It is a bit difficult.
_PAGEBREAK_ Q: What will you do with this entire real estate basket? It has been through hell over the last couple of sessions. It looks like the pressure is back. When you were talking about some of the midcap companies with debt, would you look at anything in real estate now?
A: Very selective. If you list 50 companies in this segment, I would shortlist only two or three that are worth an investment, because that sector is still plagued with huge inventory, debt, execution issues, consumer off take being a problem.
Companies that have been conservative have not aggressively bid for patches of land and have not aggressively committed to projects. There are very few to have really picked up at this point of time and so, this sector is going to have a challenge for a while. Q: Are you buying banks now, public or private?
A: Yes. I am very optimistic on the financial services sector, including banks. The non-performing asset (NPA) problem is fully priced in. I am not saying it is going away, there will be pain, but there is value in some of them.
If you can weather the pain for the next 3-6 months, I would see much higher prices as we move ahead. This is a good time to keep adding as you get panic lows being formed by the market again and again in some of the good quality public sector banks. Private banks worry me because their valuations are stretched. Quite a few of them may have some hidden balance sheet issues. Q: How do the technicals of the market look to you now? This market has been running on just global money that has come under a bit of cloud in the last few weeks. Do you see substantial money push to take the market to the levels that you are talking about over the next one year?
A: Yes, definitely. Some serious long-term money will start coming into the market and that is exactly what we need. We do not necessarily need some of the volatile hedge fund money.
We are going to get long-only investors who are looking at select opportunities right now and that will take the markets up, much higher from the current levels. Good quality companies are the ones that are going to take leadership in the market, particularly in some of the sectors that have been beaten down and are seeing some policy action coming in, some corrective measures being taken by the government aggressively.
In the next 6-12 months, I have got it wrong, so I would want to caveat that, but government will have to take action on a pre-election mode. If that starts to happen aggressively as indicated in the last 4-5 days, I maybe wrong again. But if it does happen and the chances are high, because elections are just round the corner, then we will see lot of re-rating in many stocks in the Nifty and would help the Nifty go up.
If you look at both the currencies and the equities, they are quite oversold for a long period of time. So, a snapback is possible in both the ends. What triggers it, what kind of flows come in is difficult to game, but flows are in the pipeline. Irrespective of it tapering or not, some serious money will come into the market. Q: Would you start looking at some of the government offerings as well? In the past you have not really been subscribing to them, but things like Indian Oil Corporation (IOC)?
A: Yes, I would start looking at them, because some of the companies are undervalued, more on technical grounds, more on the fact that they are grossly under-owned at the mass retail level and at quite a few mutual fund level as well. So there will be reallocation of portfolio to these companies and in that run up one would be able to make money even as a rain trade in the short-term.