Market will remain rangebound for a while, but is likely to test the lows seen in February, Jyotivardhan Jaipuria, Founder and Managing Director, Veda Investments, tells CNBC-TV18.He attributes the ongoing relief rally to global factors, feel good sentiment in the wake of the Union Budget and the Fed decision to pause on rates.He says the downtrend, when it comes, will be largely driven by global factors."If global markets correct, India will be part of it," he says. He recommends investors to buy on dips as the market is likely to trend up by the end of this calendar.He sees a gradual bottoming out of the economy and an uptick in corporate earnings December quarter onwards as being the key drivers.He says the implementation of the Seventh Pay Commission, a good monsoon and rate cuts feeding into the economy will improve sentiment for equities. According to Jaipuria, pharma stocks are not cheap at current levels, but investors can hold on to them. He expects volatility in these shares in the run up to the Presidential elections in the US. He does not see crude prices rallying too much this year as the demand equation is still weak.
Below is the transcript of Jyotivardhan Jaipuria’s interview with Reema Tendulkar and Latha Venkatesh on CNBC-TV18.
Latha: Since we last spoke, the market has moved a good 10-11 percent and the bulls still keeping a strong hold on the markets. Do you think most of the good news is factored in or at least, the overreaction to bad news is over? Would you still have the courage to buy here?
A: We have seen what typically happens when the market test a bottom and then try to rebound up. We have seen a relief rally. A lot of this is global though part of it was also just a relief from the Budget.
Three major central banks have spoken in the last two weeks and what they have done is they have probably reversed a lot of the consensus trades which were there. So, essentially, the dollar has now been weakening because of that you are starting to see commodity markets and correspondingly equity markets do well.
So, we have seen that sort of trade play out, it may play out a bit more, but we will now get a more range bound phase in the market where market starts to absorb these gains which they have had from the lows. My guess is that some point over the next three-four months, we will again try and test the earlier lows which we saw in February. So, it is a market which probably will be range bound for the next few months and then we will probably try and see it drift down a bit and again maybe test closer to those lows.
Reema: So, as of now, you will not recommend a buy because you do anticipate a bigger fall coming through in the market?
A: It is more like, now it is the market over the next three-four months which is more like a range bound market, so the February lows are like the bottom for the market and the market will move in a narrow range. So, it is a time where on bad news, on dips in the market, you have to buy because the later part of the year is going to be much better for the equity markets.
Latha: Do you suspect that even 6,800 could be breached on the lower side?
A: We may not breach there but we will probably reach somewhere near that level whether it is 6,800-7,000.
Latha: You mean because of the fourth quarter numbers?
A: It will be a combination of two-three factors. One, in India, the numbers will continue to be poor. The second is going to be global, so it is more going to be a global, any correction like that will be more global rather than India. And if global markets correct, then India will be part of it._PAGEBREAK_
Reema: You said that you expect things to improve and stabilise in the second half of the year. What will that be driven by and if we do get a dip in the coming one-two months, what would you recommend a buy on?
A: What we are starting to see in India is very gradual bottoming out of the economy and a slow recovery happening. It is very slow so at the moment, you hardly get signs of it, you get index of industrial production (IIP) numbers which do not look good and you start questioning the recovery. But as we move towards the end of the year, we will have more visible signs that the recovery is happening, it may be a slow recovery but it is a recovery which is coming. That will be accompanied by earnings moving a notch higher than what they have been like in the last three years. We got used to earnings actually coming in at low single digit or mid single digit. So, that will start improving. We will probably go to 10-12 percent actual earnings growth. That is what is going to be positive for the equity markets.
Latha: When exactly do you see it? You see it only in the second half of FY17?
A: It is probably late in this calendar year. However, what will fall in place is the Pay Commission, so you have that impact coming through. We hopefully have a good monsoon because after two poor monsoons. So, rural demand which was dragging recovery in the last two years will also start participating a bit. So, you will have a combination of this plus you had rate cuts, so that rate cut starts to feed into the economy.
Reema: What should long term investors in heavy weight pharmaceutical names like Lupin and Dr Reddys Laboratories which have a sword of the US Food and Drug Administration (FDA) hanging over them does?
A: These are stocks which, they are still growth stocks, but they are not very cheap, they are expensive. So, people can hold on to them. Near-term, probably a lot of volatility in the US especially with the election season going on. We will probably start getting all this news on pharmaceutical prices, pharmaceutical companies, the cut in pharmaceutical prices coming through. So, over the next few months, you will have to go through that phase where US elections will play a part also in creating some nervousness around these stocks.
Latha: You have been a long time tracker of the petrochemical space. You are not convinced that crude has seen its worst? How would you look at that market?
A: We have seen a rally and that has been a good thing because with the rally, we have seen the equity market rally too. For crude, the demand equation is getting very weak. So, in the end only way for crude prices to maintain or go higher is if the producers can get together and have some arrangement of the supply. That is what has kept crude so high all these years where Organisation of the Petroleum Exporting Countries (OPEC) and everybody had a very strong supply constraint or they had a cartel going and as long as they can maintain this supply arrangement then crude could maintain at these sorts of prices.
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