Sensex may see 22000 by March 2013: Sanju Verma

It was a day of consolidation for the Indian market. The Nifty traded in a narrow range before closing flattish, despite of the government winning the FDI vote in Rajya Sabha. It seems the market had already factored in the government's majority in the retail FDI vote.

The Sensex ended 62.70 points down at 19,424.10. The Nifty shaved 23.50 points to close at 5,907.40. In an interview to CNBC-TV18, Sanju Verma, managing director and chief executive officer of Violet Arch Capital says that the market will move from strength to strength before even coming anywhere close to overvalued zone. "While the valuation based rally may have played itself out, the fact of the matter is that an earnings based rally has still to play itself out," she adds. According to Sanju, a confluence of liquidity, sentiment, reforms, global cues and most importantly geopolitical situation in the Middle East will drive the market. "What will drive the markets in the medium-term is the fact that with Xi Jinping coming to China, with a new leadership taking helm, after a long hiatus, you will see a very easy monetary policy. Don’t forget that China’s growth on the GDP front has been sub-8 percent for two to three quarters at a stretch. So, easy monetary policy is here to stay," she elaborates.  She has a Sensex target of 22,000 by March 2013. Big fish in midcap pond: 10 stocks on Credit Suisse radar Below is the edited transcript of Sanju Verma’s interview on CNBC-TV18. Q: What have you made of the market reaction post the Rajya Sabha FDI in multi-brand retail vote going through? A: It was more or less a foregone conclusion that the government would pull through the strength to get its way on multi-brand retail. It’s not about whether this is a big push towards taking the reform process forward or not. It is not even about how many people will be employed or otherwise. I think it has always been about political posturing. It’s always been about who has more strings to pull and who has more favours to dish out. It’s always only been about the Congress led UPA trying to put its stamp on the fact that mid-term elections are only good on paper and this government is here to stay its full term and run its course till elections in 2014. So, to that extent, it is sort of cements the notion that mid-term elections are certainly not happening, notwithstanding the fact that elections in Gujarat are going to be one sided against the Congress led UPA. From the market perspective, the more important thing to note is that the valuation based rally is almost over. Even if you assume the Sensex consensus EPS for FY14 stands at 1,400, there is a likelihood of that getting downgraded, you assume that the Sensex goes up all the way to 22,000, which is our houseview, by March 2013, then the Sensex PE would be in the region 15-16 times. I think that is fairly valued. As I always say, market is never fairly valued. It is either overvalued or undervalued. My personal sense is that you will see the market moving from strength to strength before even coming anywhere close to overvalued zone simply because while the valuation based rally may have played itself out, the fact of the matter is that an earnings based rally has still to play itself out. The Q2 FY13 numbers may have disappointed with respect to the top-line growth of the Nifty universe. The Nifty universe showed a top-line growth of barely 14 percent vis-à-vis 25 percent odd barely a year back. The important point to note is that finally it is not top-line, it is the operating profit, the profitability and the bottom-line for companies finally matter. I think the Nifty universe has chosen to surprise there. Operating profit margins have actually expanded by about 45-50 basis points to about 15-16 percent. More importantly, EBITDA growth for the Nifty universe has come in at a healthy 14-15 percent. That is great news. So, while you always had a Reliance, which sort of disappointed, you had Tata Steel, which disappointed even the most pessimistic analyst on the street with a negative EBITDA per tonne of USD 2, the big surprise came from autos. Despite all the brouhaha about public sector banks being afflicted with poor asset quality, the fact of the matter is if you still had the big boy State Bank of India (SBI) showing a net interest income growth of over 15 percent. Don’t forget Mahindra and Mahindra (M&M) showed you a 20 percent plus growth both at the top-line and bottom-line. Cement companies, despite the rise in power, freight and fuel costs, actually showed a 17 percent growth in realisation and over 20 percent growth in revenues. So, I think there were pockets of surprises. The earnings based rally is yet to play itself out. Most importantly, the global cues will be positive. I am not reading too much into this whole debate about the fiscal cliff. I think both the Congress and the senate, which is basically controlled by the Republicans, will find a via media. Any kind of disaster with respect to any hawkish decision on the fiscal cliff front will be aborted. So, that should be positive news as well. What will drive the markets in the medium-term is the fact that with Xi Jinping coming to China, with a new leadership taking helm, after a long hiatus, you will see a very easy monetary policy. Don’t forget that China’s growth on the GDP front has been sub-8 percent for two to three quarters at a stretch. So, easy monetary policy is here to stay. Each time China reduces reserve requirements by 50 basis points, they infuse USD 63 billion or 400 billion Yuan into the monetary system. That through the multiplier effect is great news for global liquidity and global risk weighted assets including emerging markets such as ours. _PAGEBREAK_ Q: In the winter session of Parliament, if we do not see both the Pension as well as the Insurance Bill go through, do you think the market will be disappointed? A: No, I do not think the market will be disappointed. I am not saying this now. We were bullish way before others decided to upgrade their index numbers. We released on June 5 where we categorically said we are looking at an index target of 19,000 by September and 22,000 by March 2013. We clearly said that the market is not betting on reform. I do not think reform is going to drive sentiment either. It is not going to be macros either because if that was the case, I do not think you should have even seen the three or four percent odd rally that you saw in September and the rally that you saw in the last 10-15 trading sessions because the IIP numbers have been very disappointing. Forget about the fact that GDP growth came in at 5.3 percent for the September quarter. The fact of the matter is that even consumption growth, which was growing in the region of 5 or 6 percent, has come down to negative territory. Capital good was always disappointing. On a 6 percent negative capital goods growth, you again had a negative 12 percent growth in September. So, things really cannot get any worse. I am using a common layman’s logic to say that it can only get better from here. It will be a confluence of liquidity, sentiment, reforms, global cues and most importantly what happens on the geopolitical front. I think very little is being spoken of about how the geopolitical situation in the Middle East is panning out with problems in Egypt, with Syria threatening to come out with its casket of biological and chemical weapons. Do not be surprised, if you see another Jasmine Revolution on the lines of what happened two years back. My personal sense is that we really need to keep a track of global oil prices.