Good monsoon may shoot up Nifty to 9000: ICICI Securities

Anup Bagchi, Managing Director and Chief Executive of ICICI Securities, expects good monsoons to help Nifty touch the 9000-mark in the coming quarters. He told CNBC-TV18 that if the monsoons are good there's a good chance that the Nifty could touch last year's highs. ICICI Securities expects the Nifty to be at the 9,000 mark by December 2016. If banks' balance sheets get better in the coming quarters there's only one way for Bank Nifty — up, he said.ICICI Securities is overweight on private banks, NBFCs, industrials, cement and consumer discretionary. It is underweight on metals, power utilities, pharma and telecom sectors.ICICI Securities is assuming 15.8 percent earnings growth for FY17 and 17.8 percent earnings growth for FY18.Below is the verbatim transcript of Anup Bagchi’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: Just a word on market because I was going through your strategy note and I believe you have one aggressive target of Nifty almost going back to its previous highs or lifetime highs by calendar year end. You want to tell our viewers what makes you so bullish? A: There are couple of triggers that are already there. The earnings that I have come out so far, ex-financial services and banking that is, are better than what in general was expected. If monsoons are good, it will start to propel it a bit upwards. However, we don’t think it is going to take off the last years or the year’s high but I think it is going to certainly go and try and touch that side. If by next quarter banking balance sheets become okay, then that can start to lead the way to the next high.Ekta: What is your sense in terms of the bank balance sheets because the Bank Nifty at some point has to contribute for the Nifty to get to 9,000 so you think that may be the worst is over with the banks this quarter? A: We will have to see whether the worst is over or not, it is for the investors to decide whether this is really the low point. I think some capital infusion in some of the public sector banks, etc will also help. If that starts to come and we see the ebb in the next quarter, I think then the confidence will come back. Banking is a sector you cannot live without and if the balance sheet starts to become stronger from here and if this is the low then certainly there is only one way up. Anuj: Let us talk about your conference. I think today you were talking about building materials day and the companies that are participating are – it is an interesting bit. A lot of these stocks have done well, whether it is Pidilite Industries, whether it is Cera Sanitaryware. Do you think that this space still good for more and investors can still look for opportunities here? A: There are a couple of drivers in this building materials space. Number one driver certainly as per capita moves up, I think the shift and acceptance of branded goods becomes better. As we know in this sector, give or take almost somewhere 60 percent, somewhere 40 percent is unorganised. I think there is a move that is happening from unorganised to organised; that is number one. Number two is that top three, typically you will have 50 percent share of the top three but if you look at paints which has moved a little bit ahead, it is 70 percent. So, again there is some scope available there. The other big driver is that in this business, it is not an absolutely in a unorganised sector one of the key drivers is I would say tax arbitrage and that perhaps is the best way to sum it. If goods and services tax (GST) comes and cleaning up happens, I think that also will start to give a big fillip. So, if GST happens and there is generally a better tax discipline we certainly see a fillip of at least 50 percent more. So, if company is saying that it can grow by 20 percent, they might start growing at 35-40 percent. So that is also there. So, generally risk factors in this industry are low, the better players are very disciplined as far as capital allocation is concerned and as far as finances are concerned. Typically you will see that the dilution levels are close to zero so that makes it a very interesting play and we have been sort of bullish on this space for some time now. I think there is still some steam left in this and market is going to again come up. Other factors real estate bills etc, these are also factors. Anything which moves it to organised will fuel this space and everything that is happening in the economy today, is clearly pointing to this fact that it is moving up. Plus structurally if you look at their balance sheets, they have a mix of in sourcing that is their manufacturing and outsourcing; that also sort of makes the balance sheet, asset light so to say. Overall I think there are many factors which are positives. This whole unorganised sector is a negative, puts a drag and it doesn’t allow you to price your product to its full optimum capacity but on balance it is still a very good sector.Ekta: What is interesting is your May 25 day which is interesting Indian companies day, that is on Wednesday, can you just highlight to us what qualifies as an interesting Indian company and your top three ideas of what you like the most in terms of the top three companies that you are showcasing?A: What is an interesting company? Interesting company is where a) there is an opportunity, b) these companies have by and large figured out how to capture that opportunity in a profitable way. It is not just about capturing of an opportunity, capturing and they have figured out a way on how to capture, c) the third quarter and I would say that they have the necessary technical skills, financial skills and capital allocation discipline to be able to do it in a profitable way. So, growth in a profitable way, growth by itself is never good from an investor perspective. So, it has to be profitable or it has to be an investment which will lead to profits and free cash later. Fourth is do these companies have a hold over where they are doing and where are the next opportunities coming up. So, a mix of these four companies essentially, if these four factors for us makes these companies interesting. Also, these companies must have some kind of a scarcity value. It should not have a very large float at this point of time so that investors have opportunities to really make money if they invest in these stocks. The flip side of many of these companies are that the floating stock is not that high and because of the financial discipline they don’t sort of increase the float that much. However, scouting around for these kind of companies generally is a very good idea. Anuj: Any interesting names if you want to share because this looks like the key highlight of the conference.A: On the third day you will have all the names.