Bull market to kick in once Nifty hits 9100 next year: Elara Cap

The second quarter earnings season has not been a directional change for markets, believes Harendra Kumar of Elara Capital.Currently, we are in a bounce and the bull market will begin after Nifty touches 9100, which will happen next year, Kumar said adding that new bets on the market will be placed then.“We are entering decadal bull market,” he told CNBC-TV18.The biggest opportunity exists in corporate banking side, especially beaten names that haven’t rallied yet. In financial space, housing and microfinance companies can be looked at. The bull trade for NBFCs is in its last stage, he added.Tech companies are consolidating now.Below is the transcript of Harendra Kumar’s interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: Very interesting week lined up ahead of Diwali, big number expected. But from the numbers that came over the weekend, a lot of good showings as well, whether you talk about Cairn, Oberoi Realty, V-Guard Industries, Akzo Nobel India. What did you like from the pack?A: Some of the names that you mentioned, typically, we do not cover at this point of time. But the numbers on the largecap side -- if you look at tech companies, they have been showing some amount of holding and consolidating the ground at this point of time. So, per se, if you look at the quarterly numbers, if you looked at the trend, the results season has no delta in terms of how the stock market is moving in the last 3-4 quarters. So, it is has been perfectly priced now. The earnings season is moving over to FY18 and possibly FY19. So materially, this results season has not so much directional change for the market as of now.Latha: So, what impressed you so far? What have you incrementally added to your buy list?A: The biggest change has to be in the financials. We have added significant overweight to financials. Over the last 2-3 years, there has been discussion on the 12 large corporates who are over-levered and who are weighing down the banking sector. Within that list, some of the corporate names are beginning to ease up. You have Essar, you have JP Associates, now you have Reliance Communications and you have strategic asset sale of GMR.The biggest story is to look for corporate banks which was -- in your previous interview which you were having with Prashant, the biggest trades are out there, some of the names who were beaten down and who have not rallied. So, the sell nonbanking finance company (NBFC) by corporate/PSU banks could be a very large trade going ahead over the next 6-9 months. That is a space to watch out and look for ideas.Latha: Outside the financials, how did you look at the NBFCs? We had Equitas Holdings’ numbers, many more are yet to come, but will you keep the faith in the NBFCs and which ones?A: The bond yield story is continuing. So, up to the next 50 basis points (bps) rate cut, that trend direction does not change much. In these kind of stocks the opportunity is large, the earnings growth is currently coming from this space. So yes, for the next six months, they will probably reach a blowout stage and that is when you sell out on these NBFCs. So, that is my limited point out here.So, all of these NBFCs, even the broking firms like Edelweiss, JM Financial and Equitas -- microfinance is a very large opportunity and housing, but rest of the spaces, we would be a little worried about. So yes, the trade continues for six months, but you need to be watched out because this is in the final leg of the bull market run up in NBFC stocks.Sonia: One stock that has been under quite a bit of pressure post its numbers is ACC. How did you react to cement earnings and would you use this dip as a buying opportunity?A: Yes, cement, autos and oil marketing companies (OMC) have led the rally this time and some of the stocks are at new 52-week highs. But the positioning in the space is very clear. ACC has not been the leader in this space. So, you have UltraTech Cements, Shree Cements and some of the midcap names that have done well. It is best to stick to these names for the next 6-8 months when the sectoral churn happens.Among the midcap names, there is still some story be it Heidelberg Cement India or even JK Lakshmi Cement. The regional dynamic of this space is very important. The central India story is extremely very strong out there. So, apart from UltraTech, one should probably look at Heidelberg and JK Lakshmi over the next cycle and the stocks could be potential doublers from here.Sonia: We have a long list of largecaps announcing numbers this week, Axis Bank, HDFC, Kotak Mahindra Bank tomorrow, Hero Motocorp, ITC towards the end of the week. What are the one or two largecaps that you are backing ahead of numbers?A: The numbers are pretty much priced into the stocks. The big shift is in terms of what they are going to do over the next six months. So, the ensuing debate is on staples between high valuations and on the opportunity. So, the street is divided potentially between ITC and Hindustan Unilever (HUL) or Britannia and some of the other midcap names.The monsoon has been extremely good. The stocks have underperformed some of the spaces plus, you should remember that they are sitting on big cash. So, buy backs as a concept, as a story will re-emerge in staples and the stocks will start to tend to do well over the next six months. We have done a lot of channel checks. The labour prices have gone up significantly and in the next three months, it will reflect in volume growth.So my guess is, over the medium-term, Godrej Consumer or HUL could tend to outperform some of the names, for that matter even in the paints company. So, that is where small trade is available at the moment.Sonia: If you had some thoughts for retail investors, is this still a good time to be buying or do you expect the market to be in consolidation mode?A: If you look at it over the last 3-4 months, the market has not done anything. So, it has been consolidating. The limited point that I want to make is we are in a bounce and the bull market has not yet begun. The real bull market begins after 9,100 when we take out new highs and that is potentially next year.So, the sector allocation will also change next year. What we need to watch out for is the strength of the take out of 9,100 and then new bets need to be placed as per the new rally. So, we are not worried on this current rally. People should be long and they should be quite agile in the sector allocation. So, we are entering a decadal bull market and it is very important that you stay long.