Dec 05, 2017 02:01 PM IST | Source: CNBC-TV18

Don't see deep cuts in market; betting on earnings recovery in 2018: Envision Cap

What should one bet on in such a scenario? Nilesh Shah is betting on recovery in 2018. Structural reforms will start playing out in positives.

Weak moves on the Indian market continued on Tuesday, with the Sensex falling over 200 points intraday, while the Nifty breached 10,100-mark as well. Frontline indices are well off their high points and the downfall also raised questions whether a deep cut in the market is likely going ahead.

Nilesh Shah, MD and CEO of Envision Capital sees a shallow correction for the Street. “It looks like there could be 4-5 percent correction ahead. That is how markets have behaved and it is unlikely to move in some other way. This could be year-end profit booking,” Shah told CNBC-TV18 in an interview.

Further, he pointed out that the market in general has gone through consolidation phase on the back of lack of earnings growth. “While they have been better than expectations, they are yet to step into double-digit earnings scenario,” he told the channel, adding that it could start from CY2018.

Will political outcomes from state and general elections ahead make any impact on the market ahead? Shah said he won’t be surprised if political debate takes over the market between 2018 and 2019.

“The current government seems to be on a sticky wicket… but a case for re-rating is likely if the government is voted back to power,” he said.

However, in the short term, the kind of change in terms of outcomes will be a cause of concern. “Fresh opinion poll indicates a majority, but the question is about shrinking margins. It could impact the market for a day or two,” he added.

So, what should one bet on in such a scenario? Shah is betting on recovery in 2018. Structural reforms will start playing out in positives. There could be public investment in infrastructure and housing could also gain a lot of traction, he said.

“We expect core sectors to do really well. Cement, engineering and midcap IT could be in focus,” he told CNBC-TV18. He also recommends keeping an eye on banking and financial services due to the recent correction.

Meanwhile, on NBFCs, Shah said that it continued to be a troubled spot. “Concerns on asset quality could play out and more on the housing finance space. Tier-2 HFCs could see margin pressure, asset quality issues as well. These could dent earnings growth,” he said. But the space to watch out is tier-2 private sector banks. There is scope to improve CASA and maintain asset quality as well.

In stock-specific news, Shah said that appointment of new CEO at Infosys ended one uncertainty around the company. “Credentials of the CEO are fantastic and the Board and investors could not have asked for a better choice. But, we have to wait to hear from him, about his plans and how he implements them. The market will have to wait till they see results of his new vision,” he said.

Having said that, there are headwinds seen in terms of demand outlook and pricing issues, which will remain. It could be a couple of quarters of wait and watch now.

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