Jyotivardhan Jaipuria Founder & MD Veda Investment Managers says that stable sectors like IT and pharmaceutical are likely to report lower double-digit growth going forward.
The market rally, which has been seen in last five to six weeks, needs a bit of consolidation, says Jyotivardhan Jaipuria Founder & MD Veda Investment Managers. Lot of global as well as domestic factors has been responsible for this rally.
Jaipuria, who is bullish on domestic money, says that Nifty may touch 9,000 mark before the end of this year.
Ashwini Gujral of ashwinigujral.com says that looking at the current momentum, it isn’t far when Nifty re-visits 7,900-8,000 level.
The main trigger for this market is the monsoon forecast, Gujral says adding that: “since markets discount the future it will be easier to absorb whatever negative surprises are there.”
Among emerging markets (EMs), the best performing market so far has been Brazil on back on low commodity prices. “In this sort of a rally, India actually does not do as well as a lot of other emerging markets do because India is treated like a safe haven,” Jaipuria says.
However, even if this rally ends, India is likely to do well among EMs, he adds.
With expectations of an above average monsoon, tractors and two-wheelers are likely to do well. “The delta change is probably going to be the biggest in tractors followed by the two-wheelers because the rural story will play out,” Jaipuria says adding that four-wheelers will continue its volume uptrend.
Banking sector, which has been reeling under stressed asset situation, will start performing better once commodity prices stabalise. Another positive for banks is more risk-on from foreigners who mostly invest in corporate banks, he says.
Cement sector is expected to perform well in longer period based on the recent momentum. However, Jaipuria expects stocks to dip as earnings will not be great.
The most underperforming sector so far has been IT last year. “IT is probably is one of the best performing sector year-to-date,” he says, but adds that likleiness of rural and urban sector performing well will keep IT understated.
“IT, pharma and consumer probably will underperform most of these risk-on rallies,” he says adding that that growth in these stable sectors will be in low double-digits.
Below is the transcript of Jyotivardhan Jaipuria and Ashwani Gujral's interview with CNBC-TV18's Anuj Singhal and Sonia Shenoy.
Sonia: The last time when we spoke with you on this show, things were really different and now look where we are. We have crossed the 25,000 mark on the Sensex again. Do you think that the best is yet to come?
Jaipuria: Probably from now, the market needs a bit of consolidation. We have had a very good rally in the market for the last 5-6 weeks. But, one thing which I must caution is, there have been a lot of India specific factors which have turned positive. A lot of this rally is still a very global rally.
So, if we see global markets from the G20 Summit in China which was at the end of February, most global markets have had a rally and the turning point there in the globe was really since that day the dollar has started depreciating and which like people say, probably there was a Shanghai accord which helped that fact.
But whether there was a Shanghai accord, it was a rally in the dollar which helped commodities go up, which has helped the equity markets go up and that is one overriding factor which probably adds to the positive we have seen on India.
Anuj: Sceptics would say that even the Wednesday rally, while it looked good, actually paled in comparison to the big global rally that we had. And in fact, even week to date, even Indian market has underperformed the MSCI emerging market. But, going forward, do you think our market will play more catch up to correct some of the year to date underperformance. We of course underperformed in February, ahead of the Budget fears. That out of the way, do you think some more catching up is required for our markets?
Jaipuria: I guess what we have seen and the reason India has been underperforming is we have seen the massive risk on rally. So, if we see the emerging markets, the best performing market is Brazil which is like from year to date, if you take dollar terms, Brazil is up over 30 percent.
Since February end, Brazil is up 20 percent in dollar terms. So, Brazil has been one star outperformer because the commodities have done very well and that has been helping Brazil. In this sort of a rally, India actually does not do as well as a lot of other emerging markets do because India is treated like a safe haven.
But, I would think over the course of the year, India would still be one of the better performing emerging markets because I do not think this rally is something which will continue and continue for a long time.
In fact, my worry is that if this dollar strength now starts to taper off, because it is hurting Japan and it is hurting euro and I do not know what stand they will take. Somewhere the central banks there may have to make some move to try and depreciate their currency and that could see this rally coming a bit into question mark.
Sonia: Let us talk about some big sectors which moved this week. One of them was autos. I am going to name a couple of stocks for you and tell me where you see more value. Hero MotoCorp which has hit a new high at Rs 3,150. Tata Motors, which has rallied 15 percent in just one week and then you have some of the smaller companies like TVS Motors that are sitting at new highs as well. Where do you see more potential now?
Jaipuria: For me it would be probably, if you look at the next 6-9 months, I would be most bullish on the tractor people followed by the two-wheelers and the four-wheelers. So, that would be my pecking order because if we get a good monsoon, the tractors are the ones which are going to give you the biggest bang for buck because you will have a huge swing coming there.
In the four-wheelers we have seen a strong performance over the last 12-18 months in terms of volumes. So, though volumes still continue to be strong, the delta change is probably going to be the biggest in tractors followed by the two-wheelers because the rural story will play out.
Anuj: The leader of the current market rally, just this month’s rally has been ICICI Bank. Of course, from oversold ground we have seen a big rally in some of these economy facing banks. ICICI, Axis, even couple of PSU Banks. Do you think some more valuation play is left in some of these banks even if the underlying problems are still intact?
Jaipuria: More than valuation, probably what is helping them is again commodities. So, if commodities start to do well, some of the problems which you see in a lot of these banks, whether it is the private sector or the public sector, who have lent to corporates will probably get sorted out.
So, we have seen commodity rally globally. We have also seen because of the import price that steel sector in India is starting to do well. So, that is one thing which is helping. The second is also the risk on. As we get risk-on, people are more willing to buy some of these. And some of these large private sector banks are the banks which foreigners buy the most.
So, they are some of the most over-owned companies for foreigners, so whenever foreigners start getting more bullish these are the stocks which go up disproportionately, and the converse also happens when we fall, they fall disproportionately also.
Sonia: You spoke about the tractor manufacturers and how you are bullish on them, the other pocket that has once again comeback in the limelight is the cement space so names like ACC, Grasim some of them are sitting at new highs. Is there still a lot of potential here or would you be concerned about sub-par earnings keeping the stocks upside capped.
Jaipuria: We see cement do well over the two year-three year frame, but we will probably get better chances to buy at the quarterly results are not going to be greats. So, probably some of the stocks will tend to slip, so these are things you would want to buy when the stock prices come down rather than buy it at today’s prices.
Anuj: The underperforming sector has been of course in the context has been IT. Ex of Infosys we haven’t too much by way of TCS or couple of other stocks. What do you think is happening here and incrementally would you want to put some more money in IT.
Jaipuria: If you just step back actually IT is one of the best performing sector year-to-dates apart from best performing sector year-to-date is the metals, which of course as nobody owned and so it has done very well.
So IT is probably is one of the best performing sector year-to-date. It is a play which for people it has become we buy IT when nothing else really looks good. IT and even pharma and consumer probably will underperform most of these risk-on rallies, because it’s become a very stable sector where growth in going to be the low double-digit but it is not a sector which is going to excite either way.
You can’t expect a 25 percent earnings growth here. You probably look at between 10-15 percent earnings growth going forward. So it’s underperforming more because everything else is starting to look good so people are willing to take more risk on the gone in names.
I would not be very positive on IT for this year, because my view is that we will get like domestic consumption both rural and urban doing well. There will be some pockets where investments will pick-up also, so I would be probably neutral to slightly underweight on IT.
Sonia: The top that we hit in January 2015 was 9000 on Nifty now there are some hopes that at least we can make an attempt to get there. Do you get a sense that before the end of the year we could be seeing those levels yet again.
Jaipuria: I look at fiscal year, so before the end of this fiscal year, we probably should be hitting those levels or coming close to it.
Anuj: What about the domestic sentiment, we have seen the domestic participation in this market has remained intact barring that two or three month period when the market went through that massive correction, the domestic flows have supported the market throughout last year and they continue. We haven’t seen big outflows yet. Do you think they will continue to support the market.
Jaipuria: I am quite positive on the domestic money coming into the equity markets because of two things - one is as we get market rallying, the midcaps will do well and that always support domestic inflow.
The second is we have to think of the alternate for lot of domestic retail investors so real estate used to be the biggest thing for them followed by gold and both of these asset classes are coming into question marks returns from them are slipping and to that extent equities are starting to look good.
As interest rates come down, even people may start thinking as a saver I don’t get too much money if fixed deposit let me move a bit to equities.
Anuj: We were talking through the week that the good part about this market was that a lot of people would have managed to buy the dips and they would have been rewarded with the kind of move that we had on Tuesday and Wednesday. However going forward what is your next advice. Do you think this is a market which has given clear indications of seeking much higher levels and may be sticking with long positions would work. Or is there temptation to book some profit may be early next week?
Gujral: People who book losses late lose their money before everybody else. People who book profits early are the second ones who lose their money but they lose it over a period of time. Unless you have big profits in the market you cannot offset your losses.
The kind of massive bar that we had in March, the idea was that if we pullback into that bar, you buy and the market will be able to reward you. How many days did we correct? Hardly 5 days and again is the market at fresh highs.
So, that shows you what kind of momentum and buying is visible at lower levels. So, I would not be surprised that we should soon cross 7900-8000 band and move on even further.
If this market was weak your correction would not have ended in 5 days. Given that 7500 which is way higher than 6800 is now that base, downside seems fairly limited.
Sonia: You have been telling us repeatedly that one should accumulate stocks in your portfolio and the time is now. If you had to identify 2 or 3 stocks that one can accumulate at this juncture for the longer term 1-2 years, what would they be?
Gujral: Importance of this monsoon forecast cannot be underplayed because that really gives the positive trigger to look for beyond these results. That really puts the market in very good shape to accept bad results because bad results are history and good monsoon is still to happen. So, since markets discount the future it will be easier to absorb whatever negative surprises are there.
So, clearly it is a time when things like M&M Financial which used to be Rs 400 stock has now begun to show momentum. It has had one good month, the second month has also started fairly well. So, out here you could see targets of Rs 350 and that is for a normal monsoon period where it recovers from bad results to average results.
Mahindra & Mahindra which has broken out today, when you see this kind of a large bar, obviously some big money has really travelled into the stock and that is the time when retail should get in. Any sort of correction on Mahindra & Mahindra I think in the next 6 odd months you could easily do Rs 1700.
Similarly Maruti seems to have bottomed out and there in the weeks to come you could easily see Rs 4200 which is its 200-day moving average. So, it is a mean reversion that will happen in Maruti.
Anuj: What about something like Tata Motors which was up 10 percent this week or ICICI Bank which clearly drives markets more with the kind of weight that it has and that was up 9 percent this week?
Gujral: Tata Motors has been doing well for longer than Maruti has been. However again double bottom at about Rs 280. I think next target here is about Rs 430. Once Rs 430 zone is taken out you basically have Rs 150 upside to Rs 580-600. So, double bottom, all kinds of longer term accumulation patterns are happening.
Similarly ICICI Bank, I spoke about this last month also that it has really made a bottom at lower levels and just a mean reversion means Rs 280-300 type of target. You can just see the way these stocks are moving - 6 percent on ICICI Bank is not a small move. So, people who are creating these moves chances are plan to hold it for much longer time.
Sonia: You did speak about the monsoon theme that one can still play at this juncture. Are there any other themes that you like, cement did exceptionally well in the last fortnight, sugar did well at one point in time but there was some profit taking. So, any thematic stories that you would like to play for the next couple of months?
Gujral: Monsoon, what does help it? Not only agri and chemical stocks, things like BASF, Bayer CropScience, PI Industries, Escorts, these things have been totally beaten up, out of favour, nobody owns them. These are the stocks you buy but it helps overall consumption.
So, Hindustan Unilever (HUL), Symphony, Dabur, what have you, everything tends to move up. So, basically a good monsoon means that at least 50 percent of your market starts moving higher instead of just IT, pharmaceutical trying to support it. So, basically a good monsoon will spread itself all over the consumption space plus things which are directly related to agri. So, all of those spaces should move up from here.
Anuj: For last many weeks you have been talking about correction of the under ownership in metals and names like Cairn India. Do you think large part of that has played out or do you see some more rally in names like Hindalco going forward?
Gujral: The point is that the markets move much further than anybody expects. At 9,200 nobody expected 6,800. So, we have just seen 10 percent of our market move which is really nothing. Things tend to double, triple in a market cycle, so I won’t be surprised if Tata Steel can tomorrow get up to Rs 380-400. That would be just a doubling of Rs 200 price. So, there is much more ahead.
Everybody had gotten out of metals and commodities totally over the last couple of years and just average weighting them and things just improving a little bit will lead to those prices.
So, I don’t think it is fair to say that the re-rating is done or from here you should have downside. Markets are like a beast, once you leave a beast where it will stop that only the beast can decide. So, chances are that if you are cautious now, you will repent at 8,400.
So the idea should be to get fully invested and hold for the longest period of time so that you are able to take advantage when the good news actually comes in from the effect on monsoon.