Alchemy bullish on infra; says Budget expectations all-time low

The market could stabilise if the Budget is reasonable, Hiren Ved of Alchemy Capital Management tells CNBC-TV18, addign that market expectations from the Budget are at an all-time low.He says India is struggling because of the overall bearish outlook on emerging markets.He is bullish on select infra plays and says a bank recapitalisation number of over Rs 25,000 crore will be viewed positively by the market. Below is the verbatim transcript of Hiren Ved’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: Personal Income Tax slab can be increased from Rs 2.5 lakh to Rs 3 lakh, Budget will stick to the 3.5 percent fiscal deficit target as well some housing sops will come your way and then if it is 3.5 percent there is quite possibly a rate cut from the Reserve Bank of India (RBI) unscheduled. With all this do you think there is a bottom insight for the market? A: I hope so in the sense that we are going through some pretty tough times in the market right now but it would be fair to say that we are also seeing sentiment at an all time low, participation at an all time low and expectations at an all time low. So, even if we have a reasonable Budget and some of the things that you alluded to, my sense is that you could see some kind of stability coming back to the markets. Whether they will go up right away off the block? We don’t know but I think what we first need is the market to stabilise at a certain level. Sonia: When you say some kind of stability, what do you mean because we still have weak global cues that is a big overhang? What gives you the confidence that we won’t see another leg of the downside or another leg of the capitulation in the months to come courtesy global cues? A: I haven’t said that, what I am saying is that emerging market (EM) context is still pretty challenging. However, having said that, it is interesting to note that emerging markets like Brazil and Russia, which from a macroeconomic perspective are worse off than India are, actually Brazil is just down 2 percent for the year, Russia is actually up for the year and India is down 11 percent, obviously last year they were down substantially. So, I think that what is happening in EM also is that where the markets are completely beaten down and the valuations are reasonable, money is coming there; there is no other reason why these markets are up considering that India’s macro and Indian situation is far better than some of these economies. So, my sense is that if there are redemptions because of pressure on EM funds and India being an overweight, we are kind of paying a price for that. However, if at some price if there is money to be made, smart money will always come in. Latha: What is your sense, when are you stepping in? I assume you are in cash now? A: We have some cash but we have been also buying into this fall because frankly you can’t time the bottom and you can’t think about what will happen just in the next three months. I mean certainly with the next 18-24 month perspective, it definitely looks like very attractive levels to start investing now.  Sonia: What are buying now? A: I can’t give names but I think it is the usual stuff that we like. In fact, all stocks while the index must have corrected, whatever 20-22 percent from the peak, but individual stocks have corrected 30-40 percent from the peak. So, we are just sticking to the names that we like. Sonia: Give us the sectoral buys, would you still be sticking with private banks, pharmaceutical or have you started looking at some of the PSU banks, some of the infrastructure plays? A: We have made some investments in some of the better infrastructure plays or quasi infrastructure plays. We have looked at private banks.We are looking at public sector banks, we have still not done anything there, but my sense is that it will probably take another quarter or so before you get your arms around.  I think that accelerated write off is one side of the coin, the second side of the coin hopefully we should get some clarity in the Budget. Latha: That is the other thing that we heard that the recapitalisation number could be upped to Rs 30,000-35,000 crore. A: That is pretty good. I think the base case what most people were expecting was more like a Rs 25,000 crore number. So, if you have any number which is better than that, that would be I think taken well. However, what they need to do is, is to do it all upfront, not back-ended and that would give more confidence to the market. Sonia: How high is the possibility of the market seeing fresh lows post the Budget, perhaps even slipping below the 6,800 mark? A: It is difficult to take a call in the short run. How people take the Budget, people are very skittish in the short run but my sense is that you are probably closer to the bottom then anywhere. However, you can’t call a bottom in this kind of a market. Latha: I agree with you, you can’t call but is it 6,800, is it 6,500 or is it worse than that? A: If you look at from a valuation perspective, FY17 we are trading at somewhere in the range of 14.5-14.8 times earnings. If you take one year forward as FY18, then you are trading at 12.5 times earnings. So, could you be another 2-3 percent down, you could be on the Nifty another 2-3 percent down but at some stage where the valuations get attractive, I think people will step in. Latha: Is earnings growth in the first quarter of next year, Q4 of this year or Q1 of next year? A: I don’t think Q4 of this year because Q4 on an aggregate basis you still have banks provisioning which will impact your overall earnings growth. However, that could set the base for an earnings growth in FY17. However, again, we have been saying this for a long time, I guess now the market is saying let us see it first before we believe it.