Market in early stage of bull run: CIMB

Given the recent strong upmove in Indian equities, Devesh Kumar, India Head - CIMB believes that the market is in an early stage of a bull run. However, he feels there is no point being too euphoric at this point of time. “If all the (reform) measures are taken in due course then probably over the next two years, we will see the market returning to a steady uptrend,” he anticipates.

“There is no hurry to chase the market if it runs up. There will be various opportunities over the next 12 months to accumulate the stocks you like. But broadly, one should move away from consumers and defensives and move towards cyclicals and policy trades,” he advises. Also Read: See Nifty at 6100, Sensex at 20K by 2012-end: JM Financial  Commenting on the banking space, Kumar said in case there is a sharp improvement in the sector’s market performance then probably it will be a good opportunity for traders to look at booking some profit. But long-term investors should be accumulating it over the next six-twelve months. Below is the verbatim transcript of the interview Q: Do you think our market is in a strong bull grip and we might not see too many road blocks for a while or is there something that makes you cautious at these levels now? A: We have probably seen the bottom in the recent past. But at the same time, there is no point being too euphoric at this point of time. We are at an early stage where corrective measures are being announced and we will have to see them being carried to a logical conclusion. While a few of them have been announced, we have to see lot of action in a large number of items such as fuel linkages, certain laws etc. I think there is one more round of parliamentary session where the political mood also needs to be watched. I will say that we are in early stage of this bull run. If all the measures are taken in due course then probably over the next two years, we will see the market returning to a steady uptrend. Q: Would you go ahead and buy in any sectors where reform measures have been announced? A: As far as we are concerned, we feel that if you look at the next two years and do your buying, there are chances that you will make money. There is no point chasing stocks, which have already started running up or have run up. One has to make a cautious pick. But in terms of sectoral trends, we are advising people to reduce weight in defensives such as FMCG and consumer companies. Selectively, one should start looking at infrastructure related plays and policy plays at this point of time but it should be with a view of two years. The numbers that come in subsequent quarters will not support any investment in these companies but the numbers will start building up two quarters from now. For example, if you look at the banking sector, asset quality will not change overnight. Whatever measures are being taken, that will start showing in banking sector numbers over the next two-four quarters. Therefore, if you take a view to buy banks, the next quarter numbers will be disappointing. Therefore, the market will also be euphoric, and then, it will be in a subdued mood at different points. Therefore, there is no hurry to chase the market if it runs up. There will be various opportunities over the next 12 months to accumulate the stocks you like. But broadly, one should be moving away from consumers and defensives and moving towards cyclicals and policy trades. _PAGEBREAK_ Q: You made a point that this could be the possibility of a start of a bull run. What is the colour of the money that you are noticing in the market now? Is it participation from long-only funds, from ETFs or is there other kind of participation that you are witnessing? A: At this point of time, some part of the money from the ones who have been looking at India very closely, and some ETFs, have started coming in. Globally, I think India has been an underperformer for the last two years, and that is where some part of catch up game and the words that you wanted to hear, has come. I think the broader participation is yet to come. From the global and domestic side, we have not seen much of participation mainly because funds have not been any good to raise money and they are nearly fully invested. As people’s belief in the change process comes in, more money will flow into the market, and the market will move on. But at this point of time, we have seen that people who are waiting for it, and people who can switch markets, have put some money into India which is a very small amount. Q: Within 2012 itself, do you think that the rally will have more legs? A: Yes, we feel that if the reformist action is practiced more then we will close 2012 at a level, which would be higher than where we were a year back. Q: Would you still go with the private banks, which have run very hard, where would you place your bets within the banking space? A: In the banking sector, we feel that the valuation gap between private and public sector banks has gone up. Therefore, if we have to choose between the two, we prefer PSU banks at this point of time in spite of all the weaknesses that are associated with it. As far as the sector is concerned, we feel that the quality of asset will not worsen from here but the build up also will be very slow. It will not to be an overrun business, and therefore, over six-twelve months, the sector will outperform. In case there is a sharp improvement in the sector’s market performance then probably it will be a good opportunity for traders to look at booking some profit. But long-term investors should be accumulating it over the next six-twelve months.