Can't rule out 1,000-point correction in Nifty; see opportunity in IT: Ambareesh Baliga

Indian markets on a record-setting spree

Indian equity markets have been consistently hitting record highs, with the Nifty recently surpassing the psychological 19,500 level. A combination of factors is driving this stellar run on Dalal Street. Strong foreign institutional investor (FII) inflows, controlled inflation, and consistent growth in corporate earnings have significantly boosted confidence in the Indian equities market. International investors have shown increasing interest, leading to inflows totalling more than $3.5 billion. These positive macroeconomic fundamentals reflect India's attractiveness as an investment destination.

Ambareesh Baliga, an independent market expert, believes that valuations may be turning frothy as the Nifty continues to break milestones and make its way towards the 20,000 mark. In an interview with Moneycontrol, he says that after the rip-roaring rally a correction of over 1,000 points could be on the cards for Nifty. And that, he believes, would present an opportunity to buy into the market. Edited excerpts:

Indian markets have been on a tear with no signs of cooling off. What is your take on the markets now?

At this point of time, I'm finding the markets are getting a bit too frothy, especially on the mid and small-cap side. Clearly, liquidity has been driving the markets as there are speculators who are getting into investing mode and that seems to be revving up the markets. So it is getting a bit expensive but at some point of time we'll see a correction.

And that correction also can be quite deep, because the market was decently valued when the Nifty was at about 18,500-18,600. But at these levels, if you see a correction, it could be possibly a bit deeper, and it could be in excess of 1,000 points. I see the markets possibly correcting to levels of 18,200 -18,400. So that will not be a small dip. I think it'll be a decent correction.

Earnings season is kicking off next week with IT majors slated to report Q1 numbers. Interestingly, this time even before the Q1 numbers have come out, brokerages have further downgraded EPS for some of the IT names. In the last quarter it was the impact of the SVB crisis, but what could be the reason for downgrades this time around?

I don't think it's another crisis. We've seen a crisis earlier. But now, the effect of the crisis is playing out with lower-order flows. There have been a couple of large orders which have been cancelled, especially in the case of TCS. So I think because of this, we are seeing those downgrades, and possibly we can see that effect, at least for the next one or two quarters.

I think the pressure will still be on for a while. But possibly over the next one or two quarters, there could be those pockets of opportunity in IT because of the underperformance seen in the last about 12 to 18 months, I think there'll be some opportunity in the IT space over the next two quarters.

Let's talk about the premium bike segment. An intense price war has broken out in this segment. Of course, Royal Enfield has been the undisputed leader but now we have entrants like Hero Motocorp and Bajaj Auto. How much of a threat is it for Eicher?

Eicher’s dominance will continue for a while longer but clearly, there will be margin pressure. Because today a buyer has a decent amount of choice, because of which we could see the numbers being hit. So I won’t be surprised if you see a further cut in Eicher’s share price. In fact, I'm looking at a price which is possibly below Rs 3,000. So even at these levels, I would suggest that if one is holding Eicher, possibly it is time to book out.

What are your thoughts on the spirit makers? In the fourth quarter these companies saw margin erosion on the back of higher raw material prices. But analysts expect the first quarter to be extremely high-spirited.

One should look at a stock like United Spirits, which I think will continue to do well because they are more on the high margin sort of business with premium brands. So I think that's one stock which should continue to do well.

We have seen stocks like DLF hitting fresh 52-week highs. How would you view the current realty rally?

The real estate rally should continue, at least in the foreseeable future because there's real demand at the ground level, especially in the affordable housing space. In fact, I see a decent amount of demand coming in. Interest rates should start coming down possibly by January 2024, at least in India.

That would be the next big trigger for the real estate space, especially affordable housing. So other than DLF and Godrej Properties, one should look at pure-play affordable housing names as well. One stock which comes to my mind is Arihant Superstructures, which is purely into this space. This is one stock which can possibly give decent returns, at least in the foreseeable future of the next two to three years.

What do you think about tyre companies? We have seen the likes of Ceat, Apollo Tyres and JK Tyre perk up quite a bit. 

I liked all these three stocks sometime back but with the sort of rally we've seen in the past couple of days, I think they are more than fully priced. So at this point of time, I'm not really going for a fresh pick in the tyre space. But I suppose in the battery space, there's still some more upside left. So one should look at stocks like Exide and Amara Raja. Possibly, we can have another 15-18 percent rally in this space over the next two to three months.

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