JPMorgan sees 7900-7950 as a strong support level for Nifty

Sonia: The overriding theme in Budget is welfare expenditure and rural focus. In that context do you expect higher allocations towards Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), rural infrastructure and would that pocket of the market see higher levels?

A: We are looking at an expansionary Budget. I think rather than handouts the Budget may perhaps focus more on infrastructure creation because that needs to have better multiplier effect, be it in terms of asset creation, be it in terms of job creation and eventually a good trickle down impact into the economy as well. So yes, I would expect an expansionary Budget but more with a focus on creating infrastructure rather than handouts.

Latha: The global theme that you spoke about, the November 8th change of mood. Lately we are getting very positive data on global growth itself. We had a strong positive comment on commodities coming from Goldman and Citi earlier today. The Japanese trade numbers. Is all this pointing to a general improvement in global recovery and therefore more appetite for risk?

A: Absolutely, in fact if I look at our house forecast, we believe that growth over 2017 will be 30-40 bps higher than it was in 2016. So yes, the global growth environment is definitely improving. We are seeing that the growth is been driven by US but even other economies like Japan, Europe seem to be stabilising very well.

Latha: Will the risk appetite be good enough to generate a rally in emerging markets. At the moment all we are seeing is a little bit of negativity taken off but is the good news good enough to generate an emerging market (EM) rally?

A: I think developed markets will continue to outperform emerging markets but the structural story out of emerging markets is very strong, so you would expect emerging markets to be late cycle play in this rally rather than in early cycle play.

Anuj: It is a market which has done well in the last two-three years, if you look at bottom up stock pickers from that point of view, but at index level it has not done anything for the last two-three years. Do you see that changing?

A: It can change because if you look at it, what has happened in the last two or three years was, we had a certain section of the market which is the structural plays, which did very well but the cyclical plays didn't do very well. However, as Latha highlighted, we are seeing everyone raising commodity prices. You have a much better global growth environment. So to put the issue in context, if I look at earnings for this year, for the first half we had 6 or 7 percent earnings growth driven largely by the structural plays. For Q3 we are expecting 20 percent earnings growth but the structural plays are suppose to grow at only about 3 percent courtesy the immediate impact of demonetisation and the growth has been driven by the resources space. So we are having a much more balanced growth profile now which augurs well.

Sonia: That brings us to the question about sector because as you were saying rural infrastructure spending could be higher this time. Would you back some of the fast moving consumer goods (FMCG), tractor makers, rural plays, agrochemicals, fertilisers in the run up to the Budget because this is a segment that has not performed as well over the last three-six months?

A: This has been a theme that we have been pushing for almost a year now, anything to do with increased government spending in their priority infrastructure areas be it highways or railways or power transmission or rural infrastructure and housing. So areas like cement, tractors, construction equipment, commercial vehicles, they remain key overweight for us in the context of India portfolio.

Latha: You spoke about infrastructure -that is the theme you would like but there is a lot of chatter about universal basic income scheme and therefore putting some money into the hands of the lower deciles maybe the Jan Dhan account holders. If that indeed were to come, are there any stocks you back?

A: Broadly you would say that low to mid end consumption should see a leg up next year. It could be because of handouts through the scheme you mentioned but there are other factors that play here also. The Pay Commission recommendations are still playing out. You have seen a meaningful 200 bps reduction in interest rates. We finally have monetary transmission which is very important and last but not the least there is some chatter of potential cut in income tax rates in the Budget as well. So low to mid end consumption broadly should do well. What you need to remain concerned about is medium to high end consumption.

Latha: What is low to mid end consumption? You mean FMCG stocks. What all come in the category?

A: As I said tractors would come into this space because it is something that farmers would definitely want to spend on. FMCG, but again with a low to mid end bias rather than mid to high end bias should do well and even if you look at the consumer discretionary space, if you look at things like building materials or housing products and stuff like that, white goods, there could be a meaningful upside in all these areas.Anuj: Do you think the result of Uttar Pradesh election could have a bearing on the market? A: It could have an impact on the market because the way to look at it is we are in a very event heavy calendar. You have the Budget, credit policy and the state elections. I think each event will have a bearing on the market because while we are all optimistic about growth picking up, for the high frequency indicators to show the kind of improvement you and I want to see, it is perhaps going to be June-July before we see that. So over the interim the market doesn't have much to react in terms of growth numbers or data. It is largely going to react to policy and drivers of policy. So elections will have an important bearing on market sentiment at least over the immediate term. Sonia: What could be a deal breaker for you this Budget? A: I am not looking forward for too much from this Budget because the building blocks for growth are already in place. You have a much better international growth environment; demonetisation has not been the pain that everyone expected it to be. You have meaningfully low interest rates. So all you need is a little bit of a catalyst coming from the Budget and if that catalyst is provided then it will take care of growth for next year. So which is the reason even from fiscal expansionary point of view you don't need a very serious expansion; all you need is little bit of stimulus to get things going.For entire interview, watch accompanying videos.