Reforms, rate-cut hopes to run mkt till Q4FY13: Experts

Dhirendra Tiwari of Antique Institutional Equities explains, on CNBC-TV18, that the favourable factors of continued government thrust on reforms, increased expectation of a cut in interest rates and a positive Budget would maintain the current run-up in the market despite minor corrections.

Sudarshan Sukhani of s2analytics.com adds that with trade being very confusing for the equity markets, he would refrain from taking a chance at these levels. "If the market goes below the 5,850-level on Monday, resulting in a  follow-through of today's weakness, then it is time to take short positions. However, that would affect the January futures because the December series is going to expire very soon." Below is an edited transcript of the analysis by Dhirendra Tiwari on CNBC-TV18. Q: Do you think that perhaps the run for the market is over and the market is in for a bit of a correction and if so, how deep could the correction be?
A: I would say that there are positive triggers in the market such as the expected rate-cuts in January and possibilities that the Budget will be favourable. There maybe a bit of correction in the market because of a significant rally.
But I would assume that the correction may not be more than 4-5 percent and at least till 4Q FY13 the market would see a run-up on favourable factors that include government thrust on infrastructure and political stability. Though I don’t expect a major correction, the eventuality of a small correction cannot be ruled out after the recent strong pickup in the market. Q: It seems like the US fiscal cliff has started to worry the market as evinced by the movement today. What do you think would be the effect of the developments on fiscal cliff negotiations on emerging markets such as India?
A: There could be an effect on India if the global economy slows. But India was a great underperformer in 2011 and has been an outperformer this year irrespective of whatever is happening in the global markets. So even if there is an effect, I would not overemphasise that. There maybe some correction, but I think the Indian market in 2013 will be majorly driven by internal drivers such as growth, the pick-up in the economy and stability in politics. Q: At least in the near-term, can you estimate how deep the correction will be? Where you would put the floor for the market- would it be at 5,800? How should traders and investors approach these dips in the market? Is it a buy-on-dips market?
A: It is a buy-on-dips market and I would estimate a correction of a 5-7 percent. The market expecting three positives-  reforms, interest rate-cuts and export opportunities on the back of a pick-up in the global economy.
However, the undercurrent of uncertainty is expected to remain in the market due to hurdles in government-related sectors particularly in the election year. So, investors could focus on stocks in sectors that are sensitive to rate-cuts, reforms and exports that could be bought on dips. Q: Do you think 2013 in general is going to be as good as 2012 for the markets which witnessed USD 20 billion in terms of FII inflows and a boost of over 20 percent? Do you think that it can be repeated in 2013?
A: The year 2013 will be a period of consolidation for the market after a significant rally in 2012. I would say that one should not be extremely hopeful of a significant pickup but there are several sectors where money can be made based on the internal assessment and growth parameters. So, it will call for a bottom-up approach. The Index may offer an 8-10 percent but there are several sectors with possibilities of making a 20-30 percent return. Q: What are the sectors that offer the possibility of a 30-percent return?
A: I am relatively positive on non-banking financial companies, private sector banks, automobiles, pharmaceuticals and select infrastructure stocks. These are the sectors where outperformance is expected in 2013 because these sectors have been significantly rerated in the past. Q: What is your view on the currency because despite equities rising significantly the currency hasn't appreciated in tandem? What do you think 2013 would be like for the rupee?
A: The outlook on currency remains very uncertain. A few factors have caused volatility in currency- significant inflow of foreign funds, problems caused by rising fiscal and current account deficit, and the overall slowdown in the economy.
So, it is extremely difficult to predict the rupee’s movement in 2013 but the liquidity in the global equity markets may not effect a meaningful correction from current levels. A range of 54 to 56 could be maintained in 2013. Q: How would you play the Bank Nifty or bank stocks going into 2013? Would it be more prudent to actually put your money on PSU-bank valuations or private banks with safe-asset quality?
A: Over last few years, PSU-bank problems have been aggravating. PSU banks are generally driven by two factors- significant rate cuts and the quality of the assets. The rate-cuts in 2013 may not be as much as the market expects.
While the valuations maybe favourable to protect the downside, for PSU banks to really outperform there has to be meaningful rate-cuts and clarity on corporate bad loans.
Private sector banks, particularly NBFCs, will do well. NBFCs as a category will probably do much better in next couple of years on increased growth and a significant boost from various government reforms. So NBFCs are preferred followed by private banks and select PSU banks are best bets for the next six months. Q: What is your call on the auto space?
A: In the auto segement, our preference is on commercial vehicles and car-companies such as Maruti, Tata Motors, Ashok Leyland and Eicher. We are not very optimistic on two-wheelers as far as growth is concerned for next 12 months.
The car industry will probably grow faster than the overall auto industry in 2013-14 on rate cuts and lower input prices. Similarly any improvement in the mining sector will cause a significant pick-up for demand in commercial vehicles. So these are the two sectors which I think can give you better returns over next 12 months’ period.