See Sensex at 21500 by March 2013: Karvy Private Wealth

The Indian market has been very volatile over the last few sessions. Varun Goel, Karvy Private Wealth is looking at a 21,500 target for the Sensex by March. "We believe there is still upside in the market. I think the macros are going to improve going forward. We probably have seen the worst. So, definitely equity market looks constructive and we continue to advice investors to buy," he asserts.

The Reserve Bank of India will be announcing its second quarter monetary policy review tomorrow. In an interview to CNBC-TV18, Goel says he doesn't expect RBI to cut repo rate. "But if RBI does indeed cut repo rates tomorrow, that will definitely be taken as a positive surprise. The market could definitely rally further in that case," he adds. Brokerage view: 12 stocks likely to give handsome returns Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Q: The Finance Minister has reiterated his fiscal deficit number. The market does not seem to have taken much heart. How are you placing the market for the near-term? You also have a credit policy tomorrow. Do you expect that if the rate cut comes, the market could see some significant gains? A: I think earnings, which we have seen so far, give us a lot of confidence that the earnings have probably bottomed out last quarter. I think more companies have surprised on the positive this time as compared to the negative ones. From earnings point of view, the market continues to look healthy. The fund flows ofcourse have been quite supportive. We do not expect RBI to carry out a repo cut tomorrow. But if RBI does indeed cut repo rates tomorrow, that will definitely be taken as a positive surprise. The market could definitely rally further in that case. Q: What is the outlook on the entire capital goods space? We have had two very diverse earnings, L&T came out with a good set of numbers, today BHEL disappointed the street. What is the outlook on the entire sector? A: We have not seen any signs of a revival of the capex cycle so far. We want to avoid the companies that are present in the BTG space. I do not think power space still remains attractive, from an investment perspective, at this point of time, atleast not until the time issues about fuel supply and environment are sorted out. That is definitely a ‘no-no’ area for us. As far as the broad construction sector is concerned, I think the next few quarters are definitely going to see some kind of bounce back in margins as commodity prices come down and as interest rates also cool off. That is something that is beginning to look attractive. But I think we will still need to see a couple of quarter earnings before we can become more constructive on that space. Q: With its new ministers, the government seems to take a proactive stance now. Will you be long on any stocks now? A: Let’s wait and see what exactly happens. One government policy measure, which we are watching very carefully, is the Goods and Services Tax (GST). I think GST can be accepted by the end of FY13. That could be extremely positive for the economy and market. But as far as sector wise reform measures are concerned, let’s see the implementation first and then develop a view on that. _PAGEBREAK_ Q: Are you still buying FMCG stocks? A: No. I was very concerned with the kind of volume numbers that we saw in last week’s earnings. Single digit volume growth does not look very inspiring. A lot of sales and profit numbers were driven by price hikes. I am not too sure to what extent we can continue with the price hike cycle. At some point of time, very low volume growth is definitely going to hurt us. Also, the valuation looks extremely stretched. So, I think it is time to become extremely cautious on some of the tier-I FMCG names. Q: What is the call on the banking names? A: As far as the banks are concerned, the split is very clear. The tier-I private sector banking names have come up with very good numbers. I think we have seen a very strong net interest income (NII) growth. The balance sheet has not deteriorated any further, the non-performing loans (NPLs) have been stable to flat and ofcourse, they have been able to maintain their net interest margin (NIMs). So, we clearly like tier-I private sector banking names and continue to buy them. However, on the PSU banking side, things continue to worsen. We have, till now, seen the worse in terms of NPL cycle. We are continuing to avoid the PSU banking space at this point of time. Q: Are you asking your clients to be on buy mode at all, before the year is out? Do you think they could still make some gains 5-10 percent? What do you have in mind? A: We are looking at a 21,500 target for Sensex by March. We believe there is still upside in the market purely because of the fact that earnings have bottomed out and we are still trading at around 13.5-14 times FY14 earnings. There is definitely, a valuation question. I think the macros are going to improve going forward. We probably have seen the worst. So, definitely equity market looks constructive. We continue to advise investors to buy.