India has things going for it which is why it is definitely not a market to sell, says Vibhav Kapoor of IL&FS. He lists soft commodity prices and deflationary trends as immediate positives that will benefit India. He sees 7500-7600 as good support level in the short term and says in 15-18 months all sectors, except commodities, will look good. Kapoor also sees the Reserve Bank of India (RBI) cutting rates by 50-75 bps this year.However, he warned that Nifty can go down in the short run mirroring global pain with China as the epicentre of trouble (despite outperforming in relative term). He expects S&P 500 to fall to 1700 in the near term and emerging market to correct further 10-15 percent.Despite the uncertainty, he sees India as one of the best placed markets. "From here onwards, investors should look at every decline as a buying opportunity," he said. Below is the transcript of Vibhav Kapoor’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Should one think of the long haul and look at these as attractive levels or should one get scared with the yesterdays whipsawing fall?
A: These are actually turbulent times but one thing I think I can answer straightaway is these are not levels to sell not particularly in India where macros couldn't have been better. The fall in oil prices, commodity prices and more than that there is now a deflationary fear in the world. That in a way is good for India because it will bring inflation down. Therefore you can see going over the next three-four months, six months a much more scope of interest rate cutting than it was say about a month ago.
We have revised our target of interest rates going down instead of 25 basis points (bps) may be 75 bps to 100 bps. So, all these are positive things as far as India is concerned. India is going to definitely standout as the best emerging market.
Having said that, it doesn't mean that markets cannot go down further from here in the short-term because there is a global panic, which is happening –- number one and when global panic happen, all markets tend to suffer. You may outperform in relative terms but you can still go down in absolute terms.
Secondly, and that is something to ponder about is, what are the global markets saying? I think they are wondering whether the world will enter into a recessionary situation because of China. That is a question, which I think it is too soon to answer and only time will tell how things pan out. Definitely from here onwards every decline is an opportunity to buy as far as India is concerned.
Sonia: I was coming to that point whether you should buy every decline and since you did say that an investor should look at every decline as a buying opportunity, what kind of an upside do you see for this market now? Do you think the upsides have been restricted because of the global problems that beset us or do you think that because India has its own macro positives, the upsides will continue to be the 15-20 percent per annum that people are expecting?
A: In the short-term, the upsides are definitely restricted much more than they were earlier and as I said, while we are saying that you should buy at every decline, it doesn’t mean that the markets are not going to fall from here. So, over the next maybe three weeks, four weeks or even maybe a couple of months, you could see further downsides if the global markets continue their panic, bad news keeps on continuing from China, you could definitely see more declines.
So, you have to now look at your portfolio from a slightly longer time perspective than earlier. So for example if you are saying the Nifty will become 9,000 in March 2016, maybe it will not, it is difficult to say or if you keep on buying at lower levels and -- I am just giving some figure, I am not saying the market will go down to that level -- let's say it goes down temporarily to 7,200-7,300 and you are buying there, then your upside even if the markets are to go back to 8,500, would be substantial and you have to look at probably now from a 2017 point of view and once all this settles down and if you have averaged your buys at lower levels, then you will still get a decent return over the next 18 months.
Latha: I know that you are the man who invests for the long haul that you are a fund manager but nevertheless it is the trading community that is in tatters at this point in time. Their psyche is in tatters. What is the sense you are getting because we are in expiry week, this week still could be treacherous or are you getting a sense that we are somewhere near the bottom?
A: I think it could still be treacherous again it depends on how the global markets behave in the next three days if we are talking on only till Thursday. If the global markets stabilise or go up a little bit then may be the problem may not be so much. However, if you again have a decline tomorrow in the global markets then obviously you are going to face lot of problems over the next two or three days.
Having said that, I think, in the very short-term about 7,500-7,600 is definitely a good support level. Over the next two or three days you wouldn’t think the markets are going to go down below that. Hopefully, if the global markets stabilise over or even say tomorrow that is one more day then expiry can pass without any further mishaps.
Sonia: So what are the stocks or sectors where there are good opportunities at this point for the longer term investor?
A: Everywhere except for commodity stocks, while they have gone down a lot maybe for a very long-term investor with a three-five year horizon, even commodity stocks can look very good right now. However, over the next 15-18 months apart from commodity stocks, everything is a good opportunity whether it is technology, it is pharmaceuticals, it is banks, private sector banks or even the capital goods, engineering, everything is a good opportunity._PAGEBREAK_
Latha: But that is the problem isn’t it, most of these public sector banks have been falling because of their exposure to the commodity companies, because of their exposure to steel and steel related products, do you therefore still put your bets in the public sector banks?
A: You should be investing some portion because the government is taking lo of action and hopefully they will take more action over the next six months. Maybe to start with, the public sector banks can form a very small portion of the portfolio and then as the markets keep on coming down if they do then you can increase your exposure in those at lower levels.
Latha: This is slightly way out question especially because we are living in such a turbulent trading times; this payment banks seems to be a bit of a revolution considering the big money bags who have been allowed to invest in this space and the fact that all the telecom companies are there. Are you playing it from a market perspective at all?
A: It is little bit still unclear as to how this will pan out. My sense is that if you are saying that will it impact the existing public sector banks in a big way, I don’t think so. However, it will definitely be very positive for the economy as a whole over the next five years because it will take banking to very small villages and rural areas and bring a lot of the economy, which is not part of the official economy into the mainstream.
Latha: What I mean is will you buy telecom companies for instances?
A: There are many other factors in telecom companies. This is going to be very small portion of the business for some time to come.
Sonia: Just coming back to that point we were making about the uncertainty as far as the global space is concerned, you would not compare this in any way to the fall that we saw in 2008 and you would still believe that India is in the midst of a big bull market?
A: On the first point definitely not, I don’t think we are in that sort of a panic where institutions will fall etc as happened in 2008 but having said that, the emerging markets in general are still going to have a very tough time and I would say you could see maybe another 10-15 percent fall in the emerging market as an overall category before things bottom out and you could see maybe some further falls even in the US market. For whatever it may be worth, what we are looking at is about 1800 as first stage on the S&P and maybe 1700 as a final bottom on the S&P and another 10-15 percent fall in the emerging markets over the next six months. Once that happens, then you would be ready for another big upmove as far as the global economy is concerned.
Latha: Now that is quite a fall you are expecting, we can’t stand out, can we?
A: As I said, we will definitely outperform. Let’s say if you have a 10 percent fall and what I am saying is that 10 percent fall in USD terms or a 15 percent fall in USD terms, so in actual local currency terms it maybe half of that or something like that and if we outperform that, then we could be even 50 percent of that. So, I would say in a very bad situation, maybe as I said earlier, markets can go down to 7,200-7,300 levels if things turn out ugly everywhere but India is definitely going to outperform, there is no doubt about that.
Sonia: Do you think that just for the very near-term every rally that we will see will get sold into and is that the way that one should approach the market just for the near term?
A: For the near term yes but this immediate fall what we are witnessing the last 3 minutes that you are saying is more relative to the expiry than anything else. Therefore that needs to get out of the way then after that things might get little better.
Latha: Are you safer in pharmaceutical and IT at this point in time or you think no - economy stocks is the way to go?
A: Probably as the markets go down you would increase your weightage in the economy stocks. Having said that, I am saying that global emerging markets currencies are going to remain weak and interest rates are going to go down, which means the rupee has to depreciate. It is a good thing if the rupee depreciates a little bit more so that your exports remain competitive otherwise things are going to be difficult. In that condition, I would say definitely the IT and pharmaceutical stocks will do reasonably level so you need to have some weightage there also.
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