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Last Updated : Oct 11, 2013 02:39 PM IST | Source: CNBC-TV18

Mkt may correct significantly in 2nd half of October: IL&FS

The market right now is in the resistance zone of 6100-6200 and has run up quite a lot and valuations too are becoming a little expensive. Vibhav Kapoor of IL&FS feels the Infy stock is fairly valued at current levels.

The market currently has run up quite a lot and valuations are becoming a little expensive, says Vibhav Kapoor of IL&FS. In an interview to CNBC-TV18, he said that the Nifty is in the resistance zone of 6100-6200 and is likely to consolidate at these levels. However, he cautions that the market may correct reasonably during the second half of this month.

Also Read: Growth has bottomed out; won't need IMF loan: RBI's Rajan

He expects selloff in bank stocks, capital goods, engineering, consumer stocks and even IT. According to him, prices of IT companies have run up significantly and hence there might be some consolidation to correction, profit booking. He feels it is essentially the rupee depreciation that has helped the index improve its upper range. This rupee fall has helped companies like Bajaj Auto and Tata Motors, he adds.

Meanwhile, Kapoor feels Infosys revenue growth was much stronger than expected. Earlier, the company announced its second quarter numbers. Net profit for the company grew by just 1.5 percent quarter-on-quarter to Rs 2,410 crore - in-line with expectations - for the quarter ended September 2013. However, the country's second largest software services exporter revised guidance for full year revenue growth to 9-10 percent from 6-10 percent.

But, Kapoor feels Infosys's margin performance has disappointed the street. He does not expect its margins to expand, going ahead. He feels the Infy stock is fairly valued at current levels.

Below is the verbatim transcript of Vibhav Kapoor's interview on CNBC-TV18

Q: What is the sense you are getting, there seems to be a feeling that the US debt issue is also getting resolved but more than that one of the markets best bellwethers is coming back into its own. You think the market should take a shot at 6140 and thereafter at 6300? You think things are falling in place at all?

A: To some extent they are but then the market has run-up a lot and valuations are again starting to become a little expensive. And if you notice actually a lot of stocks or companies which are expected to do well like the technology companies for example, Tata Motors, metal stocks to some extent, they have already run-up a fair deal. Some of them have run-up 30-40 percent and some of the others which are not expected to do well like Bharat Heavy Electricals (BHEL) have also run-up 40-50 percent.

So the market has obviously factored in very intelligently a lot of sectors and the companies where things are still going pretty well and these have now been factored into expectations. So to expect any further big rises from here immediately may not really be realistic and we also know that there are a lot of sectors where results will not be all that good may be really disappointing. We have also seen always for the last four reporting seasons that the markets tend to go up initially when the result season start and then they fall after that. Anyway the markets are in that resistance zone of 6100-6200 so I would expect them to consolidate here and may be even correct reasonably during the second half of this month.

Q: You were speaking about disappointments and selloffs coming in the second half of the month, where do you think the selloff will come?

A: It can come all across the market. We know banks are not doing well, even the private sector banks may not perform as badly as they have been performing earlier. Capital goods, engineering, may be consumer stocks, all down the line. And while I said earlier that IT has done well but IT prices have also run up very significantly so some consolidation to correction, profit booking can happen there also. And there are still a lot of other issues, I don't think that everything is just resolved.

So you could have inflation headwinds when the inflation numbers come in, you could have a rate hike happening towards the end of the month when the RBI policy comes in.

Globally also while the US thing seems to have got resort we still need to keep our fingers crossed, hopefully that will happen. But when that problem was going on, emerging markets (EMs) particularly India didn’t go down at all so I don't see any big reason for euphoria just because the US issue has been solved. Also, remember that is only a six week reprieve as of today.

Q: Would you at least say that the bottom of this market has moved up considering that a couple of things have gotten corrected, the rupee for one there is some stability that has come in, no expectation of a scare?

A: I think that would probably be a fair statement to make that the bottom has moved up. We have been of the view that the market - except for that aberration we had at 5100 - has been in this range of 5400-5500 and 6100-6200 largely and that range is still going to stay. May be that 5400-5500 can move up to 5600, but then again that is going to depend a lot on other factors. But the bottom has moved up by 100-200 points.

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First Published on Oct 11, 2013 11:15 am
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