Nifty @ 7800 good entry point; pharma, FMCG may fall: Kotak

Going ahead, he sees incremental cuts in earnings growth. "It will be a challenge to see 14-15 percent earnings growth in FY16. As things stand now, I see earnings growth for end-FY16 in 9-10 percent range," he told CNBC-TV18.

Below is edited the transcript of Sandeep Bhatia’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: It has been a very rocky last 15 days for the market how do you see the trend pan out from here?A: The market needs a correction; we for we expect the market to fall below 8,000. Good entry point for the markets would be around 7,800. Unfortunately the market has been gyrating. Every time we see the market going up, either there is some news from overseas or there are issues in terms of legislative agenda not getting through in India so we see corrections coming through. We have not seen a pronounced longer correction. I think the macro is sound, the agenda of government is very positive. However, there are going to be short-term headwinds, the earnings season in April has not started on a great note. In fact we have seen disappointments in almost all sectors mostly in largecap stocks.Banking in particular we have seen the public sector banks disappoint. So, clearly there is earnings headwinds’ coming though for the market. I would expect the same to happen next quarter which is for June reporting season in July; we will see this similar kind of situation. Only after July the market may have some new data point if the monsoons are good, that is also a big ‘if’ right now. So, only if the monsoons are good may be the data points start improving. In the meantime, the markets should trend down and in the best case scenario they will be flat. A good market correction would be necessary for investors to get a good entry point.Latha: The short point is, it is better for investors not even to plunge just now but just wait for better levels to come?A: Lower values could be seen coming through, the only outside the box event that can happen for India right now is if there is any surprise RBI action on the rate side. So even if that happens that would be a short lived positive fillip to this market. It cannot change what the markets is facing on earnings and what the other issues are happening on global growth and the taper tantrums which can take place in the summer which is June, July and August.So, these issues are not going to go away in a hurry. We should be mindful of that and wait for lower levels in the Index to make an entry. Sonia: Have we reached a stage in this market where investors have started to become vary even of high valuation stocks, even if the fundamentals of the stock is strong? A: I think high valuation stocks will take a beating. If earnings growth does not come through in this market, valuations are at risk. Especially for the pharma sector we have seen the beginning of the result season. The first few indications have not been overly positive. We will see more of that happening for most of the stocks. Even in the consumer names which are expensive, earnings have been modest at best so clearly there are issues. I would confine myself to the auto sector or to the financial sector. Axis Bank is interesting it is a good trading stock. In auto sector we have liked Tata Motors and we continue to like Maruti Suzuki.Latha: How do you approach the PSU banks in that case? Weak earnings delivered but some of them at least showed some asset quality, stability. Any value or do you stay away?A: We could see a value to come through in the PSU banks. However, I would be very careful to look at balance sheets. I think we will have a longer upturn cycle than anyone expected last year. This upturn cycle could take another year at least if not longer. So we should stick to quality in the financial sector. I would stick to private sector banks. Sonia: Overall, have you scaled down your earnings estimates for FY16 after looking at the earnings this quarter. Will FY16 be worse than what was expected earlier?A: We have seen incremental cuts in earnings growth and we are now still talking about FY16 growth in the 14-15 percent range. I think that is something which is clearly a challenge in the current scenario until we see a bigger rebound driven by the macro turning around, after July, which would definitely be a challenge.The biggest sector contributing to earnings is essentially banks and energy. Both those sectors are not going to show major earnings re-bounce in the current scenario. So, yes, earnings decline will continue. Probably we will end the year in the range of 9-10 percent earnings growth.

Latha: Where do you see the next positive trigger coming from? There seems to be no upside to either earnings or reform momentum and not even global cues in the near term?A: The biggest positive trigger will be what is happening in the parliament and what will happen in Bihar elections. So this will give, if the ruling BJP party does well or BJP manages to get its reform legislation whether it is goods and services tax (GST) or the land bill goes through both the Lok Sabha and the Rajya Sabha, which is when we will see confidence come back to this market. Otherwise it is going to be a slow burn.There is indeed going to be lot of hard work necessary to sort out some of the difficulties that have a reason for most corporate and their balance sheets and topline and margins so that will take more than a year to sought out. So the market will give you enough opportunities in couple of periods of good numbers and whenever the market rises essentially only on flows. Whenever the market rises we have not seen big fundamental announcements or changes or something incrementally improving in the earnings outlook. So, if the market has gone up 2 or 3 days in a row that is we need to see wheth there is something fundamentally driving that. The market went up and re-rated from last year essentially on the back of higher gross domestic product (GDP) growth, better policy environment, possibility of stronger earnings growth and these are the things which will sustain the market trajectory upward. These are the things that one should look out for a longer term investor; if it just flows then it will always be temporary.

Sonia: You mentioned earlier that you like good quality auto names like Tata Motors, what about the pure play commercial vehicle stocks like Ashok Leyland there, there is some concrete signs of recovery now?A: We like Ashok Leyland, it continues to do well especially because the southern region has performed better in terms of overall truck sales than whole of India. However, for heavy commercial vehicles we have already seen an uptick especially after the Coal Bill has passed. We have seen improvement in the environment and requirement for heavy commercial vehicles and trucks come through, so Ashok Leyland is a beneficiary. Not only is that, Tata Motors is a beneficiary if the trucks space start improving in India. However, the Jaguar Land Rover (JLR) which is, their UK and international business is doing a fantastic job in terms of its models, pipeline and new introductions in cars. So, that is something which will help JLR.Other than that we have to be selective and in the auto ancillary space we like Motherson Sumi. That will continue to do well and we hope that the business picks up not only outside India but also in India. So there are these names we can look at Asian Paints which again benefits from the consumption cycle coming back after July-August. Anyway, the second half is stronger for the house painting season because of the Diwali season and so on. We have seen margin expansion happen in that business so all that makes for very selective and stock picking kind of a market right now rather than a one way bull run.

Latha: Finally, with the rupee falling, are technology stocks that bit more attractive? Would you advise buying now?A: IT space essentially is a macro call, whenever we see currency depreciation and when we see the US coming back in terms of its economic environment that is when the Indian IT performs the best. Right now we are going in to a zone where the rupee will get weaker; we are going into a zone where US economic environment remains fairly fine, stable and strong.So, in a market which is trending down Indian IT looks good. Our Top pick remains Infosys and Tata Consultancy Services (TCS) these are the two names that we continue to push. However, the Indian IT is a contra India pick. That is, if you have some worries about India then you look at Indian IT, it can not play with the broad India story as such.