Mkt likely to see 5-10% run up till May 2014: Girish Pai

However, Pai expects FY15 to be a difficult year for our market and sees in a 5% range.

Below is the transcript Girish Pai’s interview on CNBC-TV18 with Anuj Singhal and Ekta Batra

Anuj: Just a word on this election scheduling. Would that be now the next big trigger and what has the market already priced in and what you think will market price in by the time we start the elections?

Pai: Election is definitely a very big event. Over the last one year this is the event that has been talked about by the market participants; investment decisions by corporates, investment decisions by portfolio investors, big purchasing decisions even by individuals have been pushed back in the phase of this particular event.

The market in terms of consensus expectations want a Narendra Modi led NDA government to come to power because it feels that is what is going to drive growth from here on and would be more positive. So, if that kind of mandate is given to Modi-led UPA, the reaction from market is going to be a positive and from here on till the election, the undertone would be positive. The opinion polls over the last many months indicate that the chance of NDA coming to power are as far more then either a third front or UPA III but what has probably set back the markets is one, global cues - the fact that the non- farm payroll numbers have been pretty disappointing over the last couple of months. The fact that the manufacturing data of China has been pretty poor, flows into emerging markets stand point is not been pretty good. So, from a global perspective that is been the reason why the market has not really gone up.

However, from a domestic stand point while participants do expect an NDA government to come to power. They don't think that Modi has a magic wand that is going to set things right immediately. The expectations are that FY15 is going to be a difficult year. My own expectation is that we will probably see growth in the range of 5 percent. We may not see inflation coming down very dramatically. We won't see great pick up in terms of earnings. Although, there is an expectation that earnings from single digit rate is probably going to be in low teens kind of a rate going in to the next year. But, we will have to wait to see what kind of decision taken by the new government.

So, therefore you will probably see a positive undertone the market running up till the Budget for instance and post Budget we will probably have to take a call whether the government is going to take the right decisions or not, whether it is investment friendly etc.

Ekta: What do you think markets will look like up till May till the election phases get completed. Is it possible that Nifty is going to trade with more of a range bound sort of momentum and do you think we would be aggressively reacting to what takes place globally if that’s the case also?

Pai: Yes absolutely, it is going to be determined by flows. As I said from a domestic stand point, the macro numbers that are going to come out have all been discounted. We could probably see low growth coming through from the succeeding quarters from here on, earnings number have been broadly factored in so I don't think there is going to be some great surprises just coming from the domestic side.

However, what is probably going to lead the market upwards is flows. They have to come in, which means that things have to settle in China and people have to get some kind of confidence that China is going to deliver that 7.5 percent growth for 2014, and that US will grow between 2.5-3 percent is what the consensus is expecting in terms of gross domestic product (GDP) for the US. So, if all that is in place, if you have a global macro picture been stable, we will probably see a run up above 5-10 percent till the May 2014. Once the results come out, we could see a further run up but beyond that it’s completely dependent on execution, it’s dependent on what kind of policies the government announces.

There are going to be lot of issues in terms of expectations versus delivery and there are going to be conflicting thought processes within the BJP itself. Modi has got a right of centre thought process. You have other chief ministers who have got left a centre thought process how it’s going to be managed. So, there are lots of issues out there.

Anuj: Right now you have seen for last few days a trend where IT stocks have seen some profit booking, Pharma has seen some profit booking and there has been some buying in metals and some other cyclicals. What's your call on that trade which is playing out?

Pai: I would think the cyclicals trade is a logical trade because if you are going to see a situation where pro-growth government is going to come to power. Money which has been largely focused on the defensives like the IT, the Pharma, the consumer staples, private banks, the high quality names etc some of that money is going to shift back to cyclicals like cheaper private banks or maybe some of the larger public sector banks, some of the capital goods names, some of the oil and gas companies.

Money could potentially shift into cyclicals because there is an expectation that the new government is going to take decisions, which are going to be more positive to these particular companies. Delta is going to be lot more for these companies.