Book profits in current mkt; long-term view good: Ambit

The market still has some juice left after the recent run up, feels Saurabh Mukherjea, CEO of Institutional Equities at Ambit Capital. He, however, cautions that investors should be choosy about what they buy from hereon. Mukherjea is advising investors to book profits in defensive sectors like IT, pharma and FMCG. He is negative on banks as well, as he expects the RBI to hike the repo rates once more, and this could hurt banks disproportionately.

"I am focusing more on rotating it to small and midcaps and rotating it to cyclicals and stock specific bets. That is where the bulk of the upside now lies," he said in an interview to CNBC-TV18. Mukherjea says much of the recent run up in share prices has to do with the market discounting a possible BJP victory in the 2014 general elections. "The elections are a long way away and there is many a slip between cup and lip. Negative news flow on that front, on the electoral front for the BJP could push the market back," he cautions. Mukherjea maintains the year-end target for the Sensex at 21,000. The Sensex may touch 25,000 over the next 1-2 years and retail investors can enter the market even now for the long-term, he says. He advises against investing in gold and realty now. Also read: Should RBI prevent further rupee appreciation? Below is the edited transcript of his interview to CNBC-TV18. Q: Has the market fulfilled all that you expected? Or has it got more? A: There is a little bit more juice left; probably around 5 percent between now and the calendar year end. Clearly, given the run-up in the last 16 months, it has gone from 15,800 on the Sensex to nearly 21,000. It is a lot of juice for the bulls. I am focusing more on rotating it to small and midcaps and rotating it to cyclicals and stock specific bets. That is where the bulk of the upside now lies. Q: How high is the probability of another major reversal in trend in the next six months if the taper program plays out as expected in the early part of 2014? A: Our year end target for the Sensex was around 21000. It is clearly almost up us. I am a bit more circumspect than I have been over the last year or so. The market does look like it has run-up a fair bit and hence stock specific targets in the market as a whole is where the investment focus will lie. There are three main risks that are facing the market, which investors are currently being blindsided to. Firstly, a lot of the run-up is because of the market discounting a good showing for the BJP in the next general elections. The elections are a long way away and there is many a slip between cup and lip. Negative news flow on that front, on the electoral front for the BJP could push the market back.  The second source of negative news which the market is not quite looking at is rate hikes. I recon the RBI will do at least one more repo rate hike perhaps, two more. It is not as if we are entirely out of the woods vis-a-vis the rupee. Inflation remains punchy and at least one more rate hike from the RBI looks likely. It will hit the banks disproportionately and this is a good time for investors to take profits in banks generally. The top private sector banks are structurally challenged and this is really a good time to take profits in banks. Third area is the Radia tapes. The Supreme Court has ordered a fairly in-depth CBI investigation into the Radia tapes. There will be plenty of adverse news flows for a whole bunch of stocks rising over the next six-seven months as the CBI looks into the tapes and inevitable news flow around corporates follow. These are three major catalysts. It has been a good run in the market, but it is time to take profits especially in banks and in defensives such as IT, pharma and FMCG. _PAGEBREAK_ Q: Today, the market is trading at 16 times. If you look at the PEG, EPS growth is not 16. Aren’t you uncomfortable at these levels? A: It is little strong to say uncomfortable just yet. We are trying to figure out post the elections, the growth this economy can deliver. It is clear that between now and elections, investors really are not that interested in India gross domestic product (GDP) growth in FY14 or earnings growth. They are now discounting that and looking ahead at FY15. In a steady state, can India get back to something like 6.5-7 percent growth and earnings growth of around 14-15 percent? I don't think it is out of question. I can see this market quite comfortably pushing up upwards towards 25,000 on the Sensex over one-two years. Over the next six months, looking at the political uncertainty, the economic uncertainty I am a little more uncomfortable in the near term. The negative rate catalyst is coming towards us. This adverse political news flow coming towards us and I am not sure the market is fully recognizing that. But over a one-two year period taking cognizance of a new government and hopefully better economic policies, a return to a degree of normalcy in economic growth, the Indian market does look well placed and we should be pushing towards 25000 over the next couple of years. I don’t have that much doubt about the longer term prospects. Near-term, I am more circumspect than I have been over the last couple of years.