Mkt attractive post 10% correction from current levels:Macquarie

He expects to see some revival in Tata Motors' domestic business

Ad spends for media have taken a hit as companies have delayed launches, and cut regular spending. In the near-term there could be an impact on ad spends for radio and some regional press. Large players like Zee are least impacted, he said.

Indulging in speculative role-playing, he said, if he were the FM for a single day, he would look to getting the consumption engine firing on all cylinders.Below is the verbatim transcript of Sandeep Bhatia's interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.Anuj: What is your sense of how 2017 could be because 2016 was a bit of a tough year at index level but a lot of individual stocks did well?A: I genuinely hope that 2017 would be a year of no surprises or less surprises from what we had in 2016. While I say this, at the same time I don’t think that will be the case. 2017 will have a fair bit of surprises in store for us.It is fair to say that we will definitely see headwinds in earnings for the current quarter reporting season in January and probably we will see it again for the full year April-May reporting season. So to that extent, I will think that the markets will be choppy and market should trend down over the next couple of months. I would be happy if I see a correction coming through. 10 percent correction at least from current levels would be something which would get us to a reasonable level for the indices to perform the next financial year. So the earlier we get this correction, the better for us and for markets.Sonia: You spoke about the headwinds in the form of earnings. What about any other headwinds, there are Budget expectations, there are tax cares over there, the demonetisation impact has not played out completely, apart from earnings where do you see the other negatives come in from?A: I wouldn’t characterised them as negatives but these are in some ways imponderables as of now. We don’t know what the outcome will be which is why I say these are imponderables. So the big imponderable will be the structural impact on tax revenue. Now, one of the key parameters to say whether this demonetisation exercise has worked for India for the longer-term will be to wait and see how the tax revenue to gross domestic product (GDP) ratio moves over the next two years.It is easy to say that tax revenues will jump in the next couple of months because that is what we will definitely see but whether that kind of jump that we see in the near-term, if that continues for the next two financial years and then stays there at a higher percentage of tax to GDP -- India is one of the lowest tax to GDP ratio. So both for the total tax collections itself as a proportional GDP under the region of 10.5-11 percent and every other market it is the ratio, which is over 22-25 percent. So clearly we have to move there as a country, which is good for allowing the government to invest and this is something which we have to wait and see if the demonetisation achieves. In the near-term the Budget is an interesting data point on the economy but I would say that is what it is, it is just a one data point for the whole year.Media and all of us in the market gets too excited about the Budget when it comes and it is around the corner. As we have seen in the last financial year, the Budget was just one data point a lot of things happened through the year and that is where we are today. So clearly on the Budget, I would expect to see if the assumptions on tax to GDP ratio continue to show the buoyancy that we have currently seen in the numbers for the month of November. In fact, for the month of November, the gross tax collections the numbers that we see show a jump of 55 percent and we would see that the same would continue for the next couple of months too.Structurally, whether for the next financial year and after that if we see the tax to GDP ratio go up, that would be a very big indicator of whether this entire exercise that the nation has gone through in November-December has worked for the economy and for the people of this country. So that is one big data point, which is near-term, which is tax collections.The other data point the market will look at is to see what is the pace of recovery. Consumption is one leg of the economy which is working very well till November, that is the bit of the economy which has not worked, which has taken the biggest hit now after the demonetisation. So we have to wait and see how consumption comes back, in which categories. What we hear from companies and we had extensive interactions with companies all through the December last two weeks and clearly companies are hurting rural areas and also where the distribution is less led by wholesalers, which has seen a big contraction of business. So the small trade and SME businesses have got hit. So we have to see whether this recovery comes through after June. So these are some of the data points that I would look at. So, I wouldn’t characterise them as negatives but these are currently imponderables that we need to wait and see how they measure out for the rest of this year.Anuj: I am looking at Macquarie's last note and what stands out for me is that a lot of pharma top picks and some of them have done well, for example Jubilant Life but you also are bullish on stocks like Sun Pharma, Glenmark. We have seen a lot of issues with pharma lately, do you think most of the damage is now in the price?A: I would think so. We have a very strong pharma franchise and clearly that is one reason why we see a lot of interest and picks come through but the real advantage of the pharma sector structurally if you see is the fact that at least as far as demonetisation is concerned, the domestic pharma story was more or less intact because for a long period of time, Indian pharmacies were accepting the old currency notes so to that extent that was seen as a defensive sector going into this demonetisation period and not only that, there will be some big events and outcomes for some of the large pharma companies. We are positive on Sun Pharma and Glenmark on the basis of positive developments in their business, whether it is their factories or new molecules, monetisation of research that come through so that is the reason why we continue to like pharma and in fact of the two large export sectors in this country where one is tech and the pharma, relatively we are favourably more disposed right now towards pharma.Sonia: In your note, you continue to be bullish on some of these auto names. Tata Motors is one stock that has once again got back above that Rs 500 mark and the sales from Jaguar Land Rover (JLR) have been looking very good. It is still a bit away from its 52-week high, but do you think it could conquer that because of good earnings?A: 2017 calendar year and the next financial year, March, 2018, one of the critical years for the development of the business and model portfolio of Tata Motors. So, we expect good outcomes to continue in the various geographies, whether it is the US, whether it is China. And the other bit which is also happening with Tata Motors is that we could see the revival in the domestic business. Probably that is still far away, maybe like 6-9 months, but that is something which, both on the commercial vehicles, heavy vehicles and to some extent -- lesser extent though, on the passenger car business would be a positive development.But the one thing that we have to remember is that 2017 is an important model year also for the product portfolio of Tata Motors and we have the new Discovery, which should start showing up in sales numbers from April onwards. That is one of the mid-priced product portfolios, not the very high-end and therefore, could be a big volume driver. So, the volume numbers for Tata Motors would definitely be on a higher trend trajectory. Not only that, the currency benefit should start appearing from the current quarter reporting season onwards and it will pick up pace as the year progresses. So, margins will also expand, so yes, I would think it is one of our top-picks in the market right now and clearly, it can scale new 52-week highs.Anuj: One more stock that I wanted to discuss with you because it was in a bull market of its own. That is Zee Entertainment. We saw, post demonetisation, big correction. A lot of fast moving consumer goods (FMCG) companies came on air and said that they have cut their ad spends by 50 percent or so. And for Zee, ad revenue was the key growth driver. Do you see that growth driver returning in 2017?A: In multiple meetings which we did at the end of this year, the message on advertising spend that we got from consumer companies from ad-media experts, people who see the entire media space as a whole that advertising spends have taken a hit. They will show up in numbers for the current quarter reporting period and will also be there for the February-March because companies have delayed launches and to some extent, people have also cut regular spending because clearly, there was not strong demand coming through and it is unlikely that you want to spend when you do not see the demand coming through.So in the near-term advertising spends, especially for radio, for some kind of press, which is very regional, there could be some impact. But as far as a large network like Zee is concerned, I would think that they are the least impacted. They would also be one of the faster recoveries coming through in the next financial year. So, I would think Zee would definitely hold up better in its topline.The real challenge, broadly for the entire media sector would be to see whether the move can move away from just being advertising revenue driven. So, in terms of sufficient revenue growth, if we see any positive surprise there, that would be the icing on the cake, but we are not building that in.Sonia: We have started a new segment, asking all our experts if they were the Finance Minister for one day on the Budget, what would they do. You spoke to us briefly about what the proposal should look like, but if you were Finance Minister, what would you do on the Budget day?A: The first thing that I would focus on is to get the consumption story moving. The easy thing which everyone says is to cut corporate taxes and personal income taxes and to some extent, it plays in to what you want as an individual. But, what the economy needs is a much bigger push in terms of consumption. I would definitely lead government spending and welfare in the agricultural and rural areas of this country which would be a big push. In fact, what I am told that going into this festival season, we had a very strong consumer momentum come through in September, October and November, first bit. I would try to revive that.The other thing which clearly, the Budget has to do, is to continue to maintain fiscal discipline. One of the reasons is the fact that the government has credibility on the fiscal side. We are going to see higher oil prices this year than what we saw in the last two years. But we have to ensure that the fuel subsidy bill continues to fall and remains low. If that happens, then we will have the benefit of lower interest rates continue during the next couple of years. That will be the biggest stimulus to capex over the longer term and to consumption and spending for even consumers. So, fiscal discipline, lower interest rates would definitely be a priority for the upcoming Budget.