Vibhav Kapoor of IL&FS is more positive on the stock market now than he was two months back. He is optimistic on the market as valuations are at reasonable levels but is still cautious.
His 12-month Nifty target is 6,800-7,000 and sees 5750-5800 as the base for the index. The Nifty is seen trading around 6700-6800 in 12 months from now and is poised to give reasonable returns in a year’s time, he added.
In an interview to CNBC-TV18 he said, the macro-economic scenario has improved and narrowing CAD is a big relief for the Indian economy.
IT, oil & gas, pharma and telecom are his top sectoral bets. Gas prices being hiked to double is a positive for ONGC and RIL and he expects both index heavy weights to fetch 12-15 percent returns over 12 months. Technology stocks remained in focus for most part of this year due to rupee’s steep depreciation. Though Kapoor is bullish on the sector and expects IT earnings growth to meet expectations, he doesn’t see it repeating 2013 performance next year. According to him, concerns related to the US Immigration Bill remains a risk. He is also positive on the power sector.
He recommends investors to follow a wait and watch approach before investing in infrastructure stocks. Inflation remains the key macro economic concern now; given that interest rates are likely to remain high, high interest rates will keep infrastructure growth in check, he added. One could invest in public sector banks having cheap valuations, he said.
Meanwhile, Kapoor is bearish on gold and feels that the yellow metal is unlikely to outperform assets like equity going ahead. In fact he had once said that he wouldn’t buy the yellow metal even from the money of his worst enemy.
He further cautioned that the US Fed’s decision to taper its bond buying programme will have some impact on inflows of foreign funds into emerging markets (EMs).
Below is the edited transcript of Vibhav Kapoor’s interview with CNBC-TV18
Q: We are in a good place up until now, the December series has had some really solid cues and most of them have played out well for us, we have moved up about 3-4 percent or so. How are you positioning yourself as you head into the New Year and into important triggers like earnings etc?
A: We are relatively more positive about the markets now than we were a few months ago. But even at this point of time I think the economic recovery, which people are looking for is still very nascent if at all. It is not yet clear as to when the capital investment cycle will begin and when the economic recovery will take hold. Gross domestic product (GDP) growth has bottomed out, but how long this trough is going to be is something which we need to watch out for. We are a little more optimistic, but still pretty cautious.
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Q: The US 10-year yield have touched 3 percent, we haven’t seen too much of a jitter, yesterday there were marginal reactions in the Mexican peso but today the Indian rupee has opened in the green, should we ignore this cue altogether, US yields going to 3 percent and probably to 3.1 as we enter the new year, at what point will you worry about it or you don’t worry about that cue at all?
A: The market seems to have taken the Fed tapering in its stride. In fact, most markets have. But if the US 10-year yield starts to move up beyond 3 percent than up to 3.3-3.4 percent, it might have some impact on flows into emerging markets at some point of time. Also, while first tapering of USD 10 billion has not had an impact but probably going forward as more and more tapering is done and the US yields go up, we might have some impact. I don’t think there is going to be a panic sort of situation, but flows need to be monitored more closely as we go forward.
Q: In that case, will that impact your stock picking strategy at all or is it just an overall worry that will put a lid or a ceiling to the markets rally?
A: I think I am more sort of worried about the domestic situation in terms of the economy picking up because there is still a reasonable slowdown which is there. Signs of pick up are there but they are still very nascent. On top of it the rural economy seems to be slowing down because the reports we get from consumer companies for example or even car companies or two-wheelers or cement consumption don’t seem to be picking up at this point of time. That is something which concerns us more because if that continues for another quarter or two and then you have the elections, the big event of the elections after that then things become a little more uncertain.
Q: What makes you more positive on the markets now than a few months ago because if you do believe that there are a whole host of uncertainties with respect to the economy, with respect to elections, earnings etc, what are the positive triggers that could perhaps take this market beyond that record high?
A: There are two-three things. Some action is happening on the ground in terms of government policies controlling the fiscal deficit, the current account deficit (CAD) is now in a much better situation, the macros look a little better than what they were a few months ago, there is no doubt about that. Also we have had the first part of the tapering out of the way without any panic reactions in the global markets, so that is another positive. More important one is that valuations -- earnings are catching up with valuations every quarter because while the earnings growth has been slow, it has been in single digits but it has still been there and therefore over the last one year to one and a half years earnings have grown by 10-15 percent. To that extent, the markets are more reasonably priced now than they were sometime ago and that gives you some comfort that probably the bottom of the market has come up from where it was a few quarters ago.
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